7 Briefly explain the differences between preferred and comm

7. Briefly explain the differences between preferred and common stock. If you are the investor which one will you prefer and why?

Solution

Common stockholders are usually given voting rights, with the number of votes directly related to the number of shares owned. Preferred stockholders generally do not have voting rights, as common stockholders do.

Preferred stock is generally considered less volatile than common stock but typically has less potential for profit.

Preferred stock shareholders receive their dividends before common stockholders receive theirs, and these payments tend to be higher.Shareholders of preferred stock receive fixed, regular dividend payments for a specified period of time, unlike the variable dividend payments sometimes offered to common stockholders.

If i was an investor, i would prefer common stock for the following reasons:

Common stock has the potential for profits through capital gains. The return and principal value of stocks fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost.