Future Business Leaders of America (FBLA) Securities and Investments Practice Test

What distinguishes straight preferred stock from other types of stock?

1. It provides voting rights

2. It has higher dividend payouts than common stocks

3. It does not have conversion features

4. It guarantees ownership in the company

The correct answer is: It does not have conversion features

Straight preferred stock is distinct in that it does not come with conversion features that allow it to be converted into common stock at a predetermined ratio or price. This characteristic sets it apart from other types of preferred stock, which might include convertible features. Preferred stock, in general, typically offers dividend payments that are fixed and take precedence over common stock. While it often has higher dividend payouts compared to common stock, this is a common trait among all preferred stocks and not a unique distinguishing feature of straight preferred stock. Additionally, straight preferred stock does not provide voting rights, which further differentiates it from common stock where voting is an intrinsic right of shareholders. Finally, ownership in the company isn't guaranteed; rather, shareholders of preferred stock have claims on assets and dividends before common stockholders, but they do not hold ownership rights in the same way common stockholders do.