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Question:
Consider the following statements:
Statement 1: Apart from normal dividends, cumulative preference shares are entitled to additional dividends if the company’s profits exceed a pre‐specified level.
Statement 2: From the investor’s perspective, callable common shares are more risky than putable common shares.
Which of the following is most likely?
A
Only Statement 1 is incorrect.
explanation
Participating preference shares are entitled to additional dividends if the company’s profits exceed a pre‐specified level. Callable common shares limit the investor’s upside potential, while putable common shares protect the investor on the downside.
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