Discuss Finra Series-6 Exam Topic 4 Question 121

Common stock and preferred stock differ in that:

Athe firm is legally mandated to make the dividend payments on its preferred stock; there is no legal obligation to make dividend payments on its common stock.

Bcommon stock pays a fixed dividend while the dividend associated with preferred stock will typically increase as the earnings of the firm increases.

Cpreferred stockholders have more voting rights than the common stockholders of the firm.

Dpreferred stockholders will receive their part of the proceeds if the firm is liquidated before the common shareholders receive anything.

Suggested Answer: D

Common stock and preferred stock differ in that preferred stockholders will receive their part of the proceeds if the firm is liquidated before the common shareholders receive anything. Neither preferred stock nor common stock dividends are legal obligations of the firm. Preferred stock typically pays a fixed dividend that does not vary with the firm's earnings, while the common stock dividend may.

Except in special circumstances specified in the preferred stock agreement, preferred shareholders have no voting rights.

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12 comments · newest first

Penney 3 days ago

Wait, C) is wrong! Common stock usually has more voting rights.

Felix 8 days ago

Totally agree with A! Common stock is riskier.

Jerry 13 days ago

A) is true, preferred stock has fixed dividends.

Charisse 18 days ago

Not sure about B), dividends don't always increase with earnings.

Daniel 24 days ago

D) is spot on, preferred stock gets paid first!

Makeda 29 days ago

Wait, I thought common stock had voting rights?

Noel 1 month ago

Totally agree, common stock is riskier!

Kiley 1 month ago

A) is true, preferred stock has fixed dividends.

Diane 1 month ago

I definitely recall that preferred stockholders get paid first in liquidation, which makes option D seem right to me.

Terry 2 months ago

I’m a bit confused about the voting rights. I thought common stockholders had more rights than preferred stockholders, but I could be wrong.

Stefania 2 months ago

I remember practicing a question about dividends, and I think common stock dividends can vary, while preferred stock dividends are usually fixed. So, I’m leaning towards option D being correct.

Kristal 2 months ago

I think option A sounds familiar, but I'm not entirely sure if it's the legal obligation part that makes the difference.

Finra Series-6 Exam - Topic 4 Question 121 Discussion