SIE practice questionmediumConvertible Preferred Stock
Which of the following is a reason an investor might choose convertible preferred stock?
- APotential to benefit from increases in the common stock price✓ Correct answer
- BHigher voting power
- CGuaranteed dividends even if unscheduled
- DExemption from market risk
Explanation
Why A — Potential to benefit from increases in the common stock price
Convertible preferred holders can convert to common stock to benefit from price appreciation. They do not get extra voting, guaranteed (unscheduled) dividends, or exemption from market risk.
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