Answered

Preferred stock is called preferred because it usually has two preferences over common stock. These preferences relate to:


ADistribution of assets if the corporation is dissolved and higher par value.
BPayment of dividends and voting rights.
CHigher par value and payment of dividends.
DDistribution of assets if the corporation is dissolved and payment of dividends.

Verified Answer :

Final answer:

Preferred stock has advantages over common stock primarily in the areas of dividend payments and asset distribution during liquidation. Preferred shareholders receive dividends before common shareholders and are prioritized during asset distribution if a corporation is dissolved. Thus, the two key preferences are related to asset distribution and dividend payment.


Explanation:

Understanding Preferred Stock and Its Preferences


Preferred stock is called "preferred" because it generally has two significant preferences over common stock. These preferences primarily relate to:



  1. Payment of Dividends: Preferred shareholders receive dividends before common shareholders. This means that if a company decides to pay dividends, preferred stockholders have priority, ensuring they receive their share first.

  2. Distribution of Assets: In the event that a corporation is dissolved, preferred stockholders are entitled to be paid back their investment before any distributions are made to common stockholders. This provides an additional layer of security for investors holding preferred shares.


In summary, the correct preference relates to the distribution of assets if the corporation is dissolved and the payment of dividends. Thus, the correct choice among the options given is: Distribution of assets if the corporation is dissolved and payment of dividends.


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