Question

Stock that permits a corporation to buy back the preferred stock at some future date is known as ________.

A) callable stock
B) redeemable stock
C) convertible stock
D) participating stock

Answer 1

Redeemable stock is a type of preferred stock that allows a corporation to buy back the stock from shareholders at a predetermined price and future date.

Step-by-step explanation:

The correct answer is B) redeemable stock. Redeemable stock is a type of preferred stock that gives the corporation the right to buy back the stock from the shareholders at a predetermined price and on a specified future date. This feature provides flexibility to the corporation while assuring investors that they can sell their stock if they choose to do so.

For example, let's say a company issued redeemable preferred stock to raise capital. The stockholders have the potential to receive regular dividends, but they also have the option to sell their shares back to the company at a specific date. This allows the company to manage its capital structure and potentially reduce its debt load in the future.