In a column in the Wall Street Journal, economist Burton Malkiel notes: “Preferred stock is a kind of hybrid security that sits between bonds and common stock.”
a. In what sense is a share of preferred stock like a bond, and in what way is it like a share of common stock?
b. Many companies issue preferred stock with a provision that allows the company to buy it back at its original price after five years. When would companies be likely to buy back their preferred stock? Is it possible that these buybacks cause losses to investors?