SIE practice questionhardPreferred Stock - Callable
If a company calls its preferred shares at a price above par and interest rates have dropped, which is likely true?
- AShareholders must give up voting rights.
- BInvestors can demand continued dividends.
- CInvestors automatically receive common shares instead.
- DInvestors will need to reinvest proceeds at lower rates.✓ Correct answer
Explanation
Why D — Investors will need to reinvest proceeds at lower rates.
Call provisions let the issuer redeem shares, and proceeds may be reinvested at lower rates. There’s no guarantee of dividends, forced conversion, or voting rights loss.
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