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SIE practice questionmediumPreferred Stock — Callable Feature

A callable preferred stock is MOST likely to be called by the issuer when:

  1. AInterest rates have risen significantly
  2. BThe company's earnings have declined
  3. CInterest rates have fallen significantly✓ Correct answer
  4. DThe stock market is in a bear market
Explanation

Why C — Interest rates have fallen significantly

Issuers call preferred stock when interest rates fall because they can refinance at lower dividend rates. If the company is paying 7% on preferred and rates drop to 4%, they can call the existing preferred and issue new preferred at the lower rate, reducing their cost. Rising rates (A) would make calling disadvantageous.

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