Finance Interview Question:

Why would an investor buy preferred stock?

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An investor that wants the upside potential of equity but wants to minimize risk would buy preferred stock. The investor would receive steady interest-like payments (dividends) from the preferred stock that are more assured than the dividends from common stock. The preferred stock owner gets a superior right to the company's assets should the company go bankrupt. A corporation would invest in preferred stock because the dividends on preferred stock are taxed at a lower rate than the interest rates on bonds.
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