S10-3 (Learning Objective 1: Describe characteristics of preferred and common stock) Answer the following questions about the characteristics of a corporation Solution Preferred stock is one of the two types of stock issued by corporations seeking to bring in capital. As with common stocks or bonds, the money that is received from the sale of these shares goes into the company coffers in return for the issuance of the shares to the shareholders. Although preferred stock does share similarities with common stock, its basic characteristics make it a fundamentally different security. Preferred stock is designed to function primarily as a fixed-income security, whereas common stock is usually considered to be a vehicle for long-term growth that often does not deliver a regular income stream. The nature and purpose of preferred stocks offers shareholders several unique advantages when compared to other investments. Characteristics of Preferred Stock Preferred stock is considered to be a hybrid security, having some of the characteristics of common stock but also resembling fixed income offerings in many respects. Unlike common stocks, preferred stocks tend to stay relatively stable in price after their issuance (most preferred IPOs are priced at $25 a share). They behave more like bonds than stocks in a number of ways, as they pay regulardividends at either a set or variable rate of interest, and their prices fluctuate in the secondary market in accordance with interest rates. Preferred stocks are also assigned a safety rating, such as AA by the same credit ratings agenciesthat grade other types of fixed income securities, such as Moody .

1. S10-3
(Learning Objective 1: Describe characteristics of preferred and common stock) Answer the
following questions about the characteristics of a corporation
Solution
Preferred stock is one of the two types of stock issued by corporations seeking to bring in capital.
As with common stocks or bonds, the money that is received from the sale of these shares goes
into the company coffers in return for the issuance of the shares to the shareholders.
Although preferred stock does share similarities with common stock, its basic characteristics
make it a fundamentally different security. Preferred stock is designed to function primarily as a
fixed-income security, whereas common stock is usually considered to be a vehicle for long-term
growth that often does not deliver a regular income stream. The nature and purpose of preferred
stocks offers shareholders several unique advantages when compared to other investments.
Characteristics of Preferred Stock
Preferred stock is considered to be a hybrid security, having some of the characteristics of
common stock but also resembling fixed income offerings in many respects. Unlike common
stocks, preferred stocks tend to stay relatively stable in price after their issuance (most preferred
IPOs are priced at $25 a share). They behave more like bonds than stocks in a number of ways,
as they pay regulardividends at either a set or variable rate of interest, and their prices fluctuate
in the secondary market in accordance with interest rates.
Preferred stocks are also assigned a safety rating, such as AA by the same credit ratings
agenciesthat grade other types of fixed income securities, such as Moody