John buys a particular issue of stock that carries a stated dividend rate of 8 percent per year; that if this dividend is not paid during a particular year,it will not be paid in a subsequent year before common stock dividends are paid; that John can exchange the stock for common stock in the future,at a specified exchange price; and that if the corporation wants to,it may buy the stock back from John at $50 per share.This stock is best described as:

Question

Quizplus · Accepted Answer

The stated dividend rate of 8 percent per year indicates that it is a preferred stock, and the clause stating that if the dividend is not paid during a particular year, it will not be paid in a subsequent year before common stock dividends are paid indicates that it is noncumulative. The option for John to exchange the stock for common stock in the future makes it convertible, and the corporation's option to buy back the stock from John at $50 per share makes it redeemable. Therefore, the stock meets the criteria for being noncumulative, convertible, and redeemable preferred stock. It is not participating preferred stock because there is no mention of it being entitled to additional dividends beyond the stated dividend rate.

John Buys a Particular Issue of Stock That Carries a Stated