How do common and preferred stock differ?

Common stock and preferred stock serve different purposes and provide various benefits and risks to investors. Common stock is typically associated with equity ownership in a company, providing shareholders with voting rights in corporate decisions, such as electing the board of directors. This group of shareholders also participates in the company's profits through variable dividends that can fluctuate based on the company's performance and decisions made by its board.

On the other hand, preferred stock does not usually grant voting rights but offers a more stable and predictable income stream through fixed dividends. These dividends are paid out before common stock dividends, making preferred stock holders' claims on company profits prioritized over those of common stockholders. This means that preferred shareholders receive dividends at a predetermined rate, providing a more conservative investment option with regular income, especially attractive during times of market volatility.

The correct answer reflects these distinctions accurately: common stockholders benefit from voting rights and variable dividends, while preferred shareholders enjoy fixed dividends without the benefit of voting rights. This clear differentiation in the rights and compensation structures of these two types of equity is crucial for investors when considering their investment strategies and risk tolerance.