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8-1. Why is preferred stock referred to as a hybrid security? It is often said to combine the worst
features of common stock and bonds. What is meant by this statement? 8-2. Because preferred
stock dividends in arrears must be paid before common stock dividends, should they be
considered a liability and appear on the righthand side of the balance sheet? 8-3. Why would a
preferred stockholdher want the stock to have a cumulative dividend feature and protective
provisions? 8-4. Why is preferred stock frequently convertible? Why is it callable? 8-5. Compare
valuing preferred stock and common stock. 8-6. Define investors' expected rate of return. 8-7.
State how investors' expected rate of return is computed. 8-8. The common stockholders receive
two types of return from their investment.

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8-1- Why is preferred stock referred to as a hybrid security- It is of.pdf

  • 1. 8-1. Why is preferred stock referred to as a hybrid security? It is often said to combine the worst features of common stock and bonds. What is meant by this statement? 8-2. Because preferred stock dividends in arrears must be paid before common stock dividends, should they be considered a liability and appear on the righthand side of the balance sheet? 8-3. Why would a preferred stockholdher want the stock to have a cumulative dividend feature and protective provisions? 8-4. Why is preferred stock frequently convertible? Why is it callable? 8-5. Compare valuing preferred stock and common stock. 8-6. Define investors' expected rate of return. 8-7. State how investors' expected rate of return is computed. 8-8. The common stockholders receive two types of return from their investment.