Question

Convertible stock means that the preferred stock:

a. Can be sold back to the company.
d. Has the right to dividends in arrears before the current-year dividend is distributed.
c. Can be eliminated by the firm by paying the stockholders a specified amount.
d. Can be exchanged for common stock.

Answer 1

Convertible stock is preferred stock that can be exchanged for common stock, which gives investors a mix of stability and potential for higher returns.

Step-by-step explanation:

Convertible stock refers to preferred stock that can be exchanged for common stock at the stockholder’s discretion. This capability offers flexibility to stockholders who might want to convert their shares in anticipation of greater return through common stock appreciation or potential voting rights that come with common shares. Convertible stock is particularly attractive to investors who desire the stability of preferred shares with the potential for higher returns that common stock can offer.