Preferred Stock is...

• A. Shares representing ownership with voting rights.
• B. A type of debt instrument.
• C. Units that convert to cash only at liquidation.
• D. Shares that pay fixed dividends and have priority over common stock in profits.

Answer: (D)

Preferred stock represents an equity class that behaves a bit like fixed-income: it pays a set, fixed dividend and has a higher claim on earnings and assets than common stock. That means holders receive dividends before common shareholders and, in the event of liquidation, have priority over common stock for remaining assets. They usually don’t have voting rights, which distinguishes them from common shares. This combination—fixed dividends plus priority in distributions—best matches the statement, making it the correct description. The other options describe common stock’s voting rights, debt-like features, or convertible timing, which aren’t the defining traits of preferred stock.