SIE practice questionmediumPreferred Stock - Convertible
Why might an investor choose convertible preferred stock?
- AIt can be converted into bonds.
- BIt can be exchanged for common stock if the company’s value increases.✓ Correct answer
- CIt always pays a higher dividend than nonconvertible preferred.
- DIt guarantees voting rights.
Explanation
Why B — It can be exchanged for common stock if the company’s value increases.
Convertible stock can be changed into common if that is more advantageous. Conversion to bonds, higher dividends, or guaranteed voting rights are not universal.
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