Question: 1. Why is preferred stock referred to as a hybrid security? It is often said to combine the worst features of common stock and bonds. What is meant by this statement?

2. Because preferred stock dividends in arrears must be paid before common stock dividends, should they be considered a liability and appear on the right-hand side of the balance sheet?

3. Why would a preferred stockholder want the stock to have a cumulative dividend feature and protective provisions?

4. Why is preferred stock frequently convertible? Why is it callable?

5. Compare valuing preferred stock and common stock.