Discuss the primary differences between preferred and common stock.

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Common stock and preferred stock differ only in the rights they have. Common stock holders can vote in matters relating to management and corporate governance, as well as receiving dividends from the board. Common shareholders have access to assets left over after the creditors and bondholders are paid.

In comparison, preferred shares generally do not include voting rights but they do provide preferential treatment when it comes to dividend payments; this means that one type of shareholder can receive a higher rate than another even though both may have invested an equal amount in the company’s stock. In liquidation situations, preferred shareholders often get paid before bondholders or common shareholders.

These differences show how different investments have different risk/reward levels depending on the security purchased. Investors should consider this when deciding where to invest their capital to maximise returns and minimize potential losses.

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