Preferred Shares

Chapter 6 page 18

Preferred shares are issued in the primary market at par value. A par value of $25 is common. In addition to a par value, preferred share have a started dividend amount, or a started dividend yield.

Some preferred shares trade in the OTC market and some in an organized exchange.

These shares have a default risk higher than the bonds. Because a bond is a contractual obligation. Bonds can recall collateral.

Preferred shareholders receive their started dividend at discretion of the firm's board of directors. Preferred shareholders are owners of the forms, not creditors as bondholders.

Preferred shares don't hold voting rights.

Like bonds, preferred shares pay fixed dividend and are issued with a maturity or redemption date of five years or longer. If a preferred share is issued without a maturity date, is called perpetual preferred. Because of its similarity with common shares and bonds these securities are called "hybrid securities".


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