University of California Irvine Finance Knowledge Questions

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Fuveyrl0211

Economics

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1. Describe the major differences between common stock and preferred stock.
The main differences are:







Common stocks will be having voting rights but preference stocks don’t have
voting rights.
Preferred stock will have preferential treatment in the distribution of dividends.
Preferred stock will have a higher hierarchy in case of distribution of assets in the
event of bankruptcy of the company.
The preferred shareholder is more linked to the company's policy and long-term
performance, while the ordinary shareholder seeks to obtain profitability in the
short or medium term and tries to speculate on the value of the share, therefore, in
many cases, they are not shareholders who identify with the company's policy
since what they seek is to speculate on the future valuation of the company.
Preferred stocks behave more like a bond, where what matters most is the
dividend distribution and not the rise or fall in the stock price.

2. Why are convertible securities more attractive to investors than simply holding a firm's
preferred stock or corporate bonds?

Convertible securities are more attractive as they provide investors with...

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UC Berkeley

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