Which one of the following statements is correct? Both preferred stock and corpo

Question

Which one of the following statements is correct?

Both preferred stock and corporate bonds can be callable.

Both preferred stock and corporate bonds have a stated liquidation value of $1,000 each.

Interest payments to bondholders as well as dividend payments to preferred shareholders are tax-deductible expenses for the issuing firm.

Bondholders generally receive a fixed payment while preferred shareholders receive a variable payment.

Preferred shareholders receive preferential treatment over bondholders in a liquidation.

Both preferred stock and corporate bonds can be callable.

Both preferred stock and corporate bonds have a stated liquidation value of $1,000 each.

Interest payments to bondholders as well as dividend payments to preferred shareholders are tax-deductible expenses for the issuing firm.

Bondholders generally receive a fixed payment while preferred shareholders receive a variable payment.

Preferred shareholders receive preferential treatment over bondholders in a liquidation.

Explanation / Answer

Ans: Both preferred stock and corporate bonds can be callable.

Both the securities give the issuer the right to call back the security in case of a fall in interest rates and issue fresh securities at a lower rate.

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