Question

Preferred stock is attractive to investors PRIMARILY because it:

a. is not subject to call.
b. earns a higher dividend than common stock.
c. entitles the holder to special subscription rights.
d. prioritizes the entitlement for payments ahead of common stock.

Answer 1

Preferred stock is primarily attractive to investors due to the priority it gives to dividend payments over common stock, providing a more consistent income stream.

Step-by-step explanation:

Preferred stock is attractive to investors primarily because it prioritizes the entitlement for payments ahead of common stock. When a company distributes its profits in the form of dividends, preferred stockholders are typically guaranteed a fixed dividend ahead of common stockholders.

This means that if a company has enough funds to pay dividends, preferred stockholders receive their dividends before any dividends are paid to common stockholders. Owning preferred stock can provide a more consistent income stream compared to common stock, which may have dividends that vary based on the company's performance and dividend policy.