Final answer:
The statement is true: preferred stock is a hybrid form of investment that carries characteristics of both common stock and corporate bonds, with a preference in dividends and liquidation over common stock but without the voting rights.
Step-by-step explanation:
The statement that preferred stock is often referred to as a middle investment, somewhere between common stock and corporate bonds, is True. Preferred stock is a type of equity that typically gives no voting rights but has a higher claim on assets and earnings than common stock; for example, preferred shareholders receive dividends before common shareholders and have priority in the event that a company goes bankrupt and is liquidated. Conversely, corporate bonds represent a debt financing where the bondholder is a creditor to the corporation and receives interest payments, known as the coupon rate, as income. A key difference is that bondholders are prioritized over all types of shareholders in the case of liquidation.
Corporations can raise funds through the sale of both stocks and bonds. While shareholders have partial ownership and may receive dividend payments when the company profits, they also share in the losses and cannot lay claim to their initial investment in the case of bankruptcy. Bondholders, on the other hand, have a creditor relationship with the corporation, receiving predetermined interest payments and expecting the return of their principal amount, making this a lower risk investment compared to stocks.