An investor should buy preferred stock primarily to gain:

• A. Upside potential of equity while maintaining stability of current income through dividends
• B. Highest growth with no income
• C. Voting rights and highest priority
• D. No risk and guaranteed returns

Answer: (A)

This question tests the idea that preferred stock offers stable income through dividends while still providing some exposure to equity upside. Preferred shares generally pay a fixed dividend and have priority over common stock for both dividends and assets in liquidation, giving predictable income compared to common stock. If the preferred is convertible, you can convert to common shares and participate in any upside from price appreciation, combining steady income with potential growth. That mix—income stability with a route to equity gains—is why this is the best choice. The other ideas don’t fit: choosing something with no income ignores the fixed-dividend feature; seeking voting rights points you toward common stock; and expecting guaranteed returns ignores that dividends can be reduced or skipped and no investment is risk-free.