Series 7 practice questioneasyEquity Securities — Preferred Stock — Callable
Which statement is TRUE about callable preferred stock?
- AThe issuer has the right to repurchase the stock at a specified price after a certain date✓ Correct answer
- BThe shareholder may call the stock back to the issuer at any time
- CThe stock automatically converts to common stock after a specified period
- DThe stock cannot be sold on the secondary market
Explanation
Why A — The issuer has the right to repurchase the stock at a specified price after a certain date
Callable preferred stock gives the issuing corporation the right, but not the obligation, to repurchase (call) the stock at a predetermined call price after a specified date. This feature benefits the issuer, not the investor, as it allows the company to retire the stock when interest rates decline.
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