Final answer:
Shareholders with preferred stock that carries a redemption privilege have the right to force the company to repurchase their shares at a predetermined price, providing a guaranteed exit strategy.
Step-by-step explanation:
When preferred stock carries a redemption privilege, the shareholders may force the company to repurchase their shares at a predetermined price. This option provides investors with a level of security, as it allows them to exit their investment at a known value, regardless of the current market price of the stock. A redemption feature is a form of risk management for preferred shareholders, as it gives them a way to recover their investment.
Contrary to common stockholders, who benefit from voting rights and may see the value of their shares increase with the company's performance, preferred shareholders typically have fixed dividends and seek stability. Therefore, when a company offers preferred stock with a redemption privilege, it is essentially offering a guaranteed exit strategy for investors under specific conditions.