Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

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BlackTom AI · Accepted Answer

To tackle this question, I will evaluate what each stock type is typically characterized by and how it relates to dividends and bankruptcy.
Option 1: Cumulative. Cumulative stock refers to a feature where if a company misses a dividend, the unpaid amount accumulates and must be paid to shareholders before any dividends are paid to others. This trait is about dividend arrears, not about receiving no preferential treatment in bankruptcy. Therefore, it does imply some dividend priority behavior, so it does not describe having no preferential treatment in either area.
Option 2: Noncumulative. Noncumulative stock does not accumulate unpaid dividends; if the company skips a dividend, shareholders do not have a right to claim those missed payments in the future. While this concerns dividends, it still does not address bankruptcy priority. The key point is that noncumulative relates to dividend payments, not the absence of any preference in bankruptcy proceedings.
Option 3: Common. Common stock represents equity with the lowest priority in bankruptcy and typically carries voting rights and variable dividends. It receives no special preference in either dividends (beyond standard corporate performance) or bankruptcy, meaning it does not have priority claims over creditors or preferred shareholders. This aligns with the notion of no preferential treatment in both respects.
Option 4: Dual class. Dual class refers to a corporate structure where there are two classes of shares with different voting rights or economic rights. This is about control and voting power rather than a blanket statement about dividend or bankruptcy priority. It does not describe receiving no preferential treatment in dividends or bankruptcy across all contexts.
Option 5: Preferred. Preferred stock is defined by its priority over common stock in receiving dividends and in bankruptcy proceedings, before common shareholders. It explicitly embodies preferential treatment, which is the opposite of the described characteristic in the question.
In summary, the statement about receiving no preferential treatment in respect to either dividends or bankruptcy proceedings most accurately corresponds to common stock, since it sits behind creditors and preferred stock in priority and does not have guaranteed dividends like creditors might have, depending on corporate policy.

BUSFIN 3220 AU2025 (2110) Exam 2 - Requires Respondus LockDown Browser

Which one of the following types of stock is defined by the fact that it receives no preferential treatment in respect to either dividends or bankruptcy proceedings?

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