Which of the following is NOT a characteristic of preferred stock?

Prepare for the Canon Financial Institute CFIRS Exam with flashcards and multiple choice questions. Each question comes with hints and explanations for better understanding. Get ready to excel in your exam!

Preferred stock is a type of equity security that has characteristics which often distinguish it from common stock. One of the hallmark features of preferred stock is that it typically provides a fixed dividend, which means that the dividend payments are set at a consistent rate and are paid out before any dividends are distributed to common stockholders. This feature ensures a level of income reliability for investors.

In addition, preferred stock usually comes with a higher claim on assets in the event of a liquidation compared to common stock. This means that if a company goes bankrupt and its assets are liquidated, preferred stockholders will be paid out before common stockholders receive anything, enhancing the security for preferred investors.

Another characteristic of preferred stock is that it does not generally include voting rights. This aspect is the distinguishing factor here; preferred stockholders do not usually have a say in corporate governance matters, unlike common stockholders who can vote on key issues such as board elections and significant company decisions.

In some instances, preferred stock may have fixed payment obligations, much like debt instruments, but the most relevant and significant characteristic that differs from common stock is the lack of voting rights for preferred stockholders. Thus, the statement that preferred stock entitles holders to voting rights is not true.

Understanding the distinction between

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