Series 7 Exam Question 14: Answer and Explanation

Question: 14

Which of the following are TRUE about both common and preferred stock?

I. They are equity securities

II. Dividends are determined by the issuer's board of directors

III. Holders have the right to vote for members of the board of directors

• A. I and II
• B. I and III
• C. II and III
• D. I, II, and III

Correct Answer: A

Explanation:

A. Common and preferred stock are considered equity securities because holders are owners of the corporation. Dividends paid to both common and preferred stockholders are determined by the board of directors. However, only common stockholders have voting rights. The only time preferred stockholders have voting rights is if they don't receive their expected dividends.