Canadian Securities Course (CSC) Practice Exam

What advantages do preferred shares offer over common shares?

1. Higher potential for profit

2. No obligation to pay dividends

3. No voting rights

4. Guaranteed capital appreciation

The correct answer is: No obligation to pay dividends

Common shares are typically seen as long-term investments while preferred shares are often seen as short-term investments. Preferred shares offer advantages over common shares such as higher priority in receiving dividend payments and guaranteed payment upon dissolution or liquidation of the company. Unlike common shares, preferred shares also bear less risk as preferred shareholders are paid before common shareholders if the company faces financial trouble. Additionally, preferred shares may offer other benefits such as fixed dividend payments, while common shares may fluctuate in dividends based on the company's performance. Therefore, option B is correct and the other options are incorrect because they do not accurately reflect the advantages of preferred shares over common shares.