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?

Question

BlackTom AI · Accepted Answer

The question asks about a stock type characterized by receiving no preferential treatment in dividends or bankruptcy.
Option 1: Dual class. This refers to a structure where two classes of stock have different voting rights or pricing, not about being without preferential treatment in dividends or bankruptcy. Therefore, this option does not match the definition.
Option 2: Cumulative. Cumulative preferred stock accumulates missed dividends and must be paid before common stock dividends, which means it does have a preference in dividends, so this is not the correct descriptor for a stock with no preferential treatment.
Option 3: Noncumulative. Noncumulative preferred stock does not accumulate unpaid dividends; if the dividends aren’t declared, the holder loses them, but this still describes a type with some preference in dividends compared to common stock. Since the question specifies no preferential treatment in dividends or bankruptcy, this option implies a preference structure in at least dividends, making it inconsistent.
Option 4: Preferred. As a broad category, preferred stock by definition carries certain preferences, typically in dividends and priority in bankruptcy, so it cannot be the one with no preferential treatment.
Option 5: Common. Common stock typically does not have the special preferences in dividends or bankruptcy; it receives dividends at the discretion of the board and has residual rights in assets after creditors and preferred shareholders in bankruptcy. This aligns with the description of receiving no preferential treatment in these areas.
In summary, options that mention preferences (cumulative, noncumulative, preferred) describe securities with some priority, while common stock is generally characterized by lack of such preferences. Therefore, the statement that best fits the definition is the one describing common stock.

33:390:300:13 FINANCIAL MANAGEMENT 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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