SIE Exam Question 68: Answer and Explanation

Question: 68

Of the different types of preferred stock, which one has the feature of enabling its owner to receive both the preferred and common dividend?

• A. Cumulative preferred
• B. Callable preferred
• C. Participating preferred
• D. Convertible preferred

Correct Answer: C

Explanation:

Participating preferred stock ownership provides the investor the right to receive both the preferred and common dividend when paid. Cumulative preferred shares not only allow the owner payment of the preferred dividend but also provide protection against missed dividend payments by requiring back payment of those dividends. Callable shares afford the corporation the right to call in those shares, often at a premium price. Convertible shares allow for the option to exchange preferred shares for common shares at a conversion price.