Preferred Stock

B is correct. Preferred stock is well-suited for Margaret's situation because it pays fixed dividends (providing the steady income she needs) and has significantly less price volatility than common stock, while still offering equity exposure. This fits her moderate risk tolerance and income needs.

A is incorrect because preferred stock DOES provide growth potential (though less than common stock) and typically pays HIGHER dividends than corporate bonds to compensate for lower priority in liquidation. C is incorrect because voting rights are irrelevant to an income-focused retiree; the lack of voting rights is a non-issue for her investment objectives. D is incorrect because preferred stock has LOWER priority than bondholders in bankruptcy (bonds are paid first, then preferred, then common).

C is correct. Preferred stock typically pays FIXED dividends (stated as a dollar amount or percentage of par value) and these dividends must be paid before any dividends can be paid to common stockholders. This is one of the defining characteristics that makes preferred stock "preferred."

A is incorrect because preferred stock pays FIXED dividends, not variable dividends (common stock dividends can vary based on earnings and board decisions). B is incorrect because preferred stock typically carries NO voting rights under normal circumstances (though some preferred may gain voting rights if dividends are skipped). D is incorrect because bondholders have priority over preferred stockholders in liquidation; the priority order is: secured creditors → unsecured creditors/bondholders → preferred stockholders → common stockholders.

C is correct. Calculate: First find the annual dividend per share: $50 par value × 6% = $3 per share. Then multiply by number of shares: $3 × 500 shares = $1,500 total annual dividend.

A ($150) incorrectly calculates using only 100 shares instead of 500 shares. B ($300) incorrectly uses 6% of 500 shares ($30) instead of 6% of par value per share. D ($3,000) incorrectly uses 6% of the total investment ($50 × 500 = $25,000 × 6%) instead of 6% of par value per share.

C is correct (the EXCEPT answer). Preferred stockholders typically do NOT have voting rights under normal circumstances. This is one of the key differences between preferred and common stock. While some preferred stock agreements grant voting rights if the company misses multiple dividend payments, equal voting rights are NOT a standard feature.

A is accurate: preferred dividends must be paid before common stock dividends (this is what makes it "preferred"). B is accurate: preferred stock has less price volatility than common stock because of its fixed dividend and bond-like characteristics. D is accurate: because preferred pays fixed dividends, it behaves like a bond when interest rates change; when rates rise, preferred stock prices fall (and vice versa).

B is correct. Statements 1, 2, and 4 are TRUE.

Statement 1 is TRUE: "Cumulative" preferred means all missed dividends accumulate as "dividends in arrears" and must be paid to preferred shareholders before any dividends can be paid to common shareholders.

Statement 2 is TRUE: "Callable" means the corporation has the right to redeem (buy back) the preferred shares at a predetermined price. Companies typically call preferred stock when interest rates fall, allowing them to reissue new preferred at lower dividend rates (similar to refinancing a mortgage).

Statement 3 is FALSE: Preferred shareholders typically have NO voting rights under normal circumstances, regardless of whether the preferred is callable or cumulative.

Statement 4 is TRUE: Because preferred stock pays fixed dividends, it has an inverse relationship with interest rates (like bonds). When interest rates rise, newly issued preferred offers higher yields, making existing preferred with lower fixed rates less attractive, causing prices to fall.