Question

Preferred stock which permits the owner to exchange it for common stock under set terms and conditions is:

a. convertible preferred stock.
b. callable preferred stock.
c. cumulative preferred stock.
d. participating preferred stock.
e. protected preferred stock.

Answer 1

Convertible preferred stock gives the owner the right to exchange it for common stock under set terms and conditions.

Step-by-step explanation:

The correct answer is convertible preferred stock. Convertible preferred stock gives the owner the right to exchange their preferred stock for a predetermined number of common stock shares, usually at a fixed conversion ratio. This allows the owner to benefit from any potential increase in the value of the common stock.

For example, let's say you own convertible preferred stock that can be exchanged for 10 common stock shares. If the common stock price increases in the future, you can convert your preferred stock into common stock and benefit from the price appreciation.

It's important to note that the terms and conditions for converting the preferred stock into common stock are set in advance and can vary depending on the company issuing the stock.