The issuing firm benefits from issuing convertible preferred shares, because these shares carry a lower dividend rate than purchasers otherwise would have required to buy the shares for a given price.

Question

Quizplus · Accepted Answer

Convertible preferred shares typically have a lower dividend rate than non-convertible preferred shares because investors are willing to accept a lower dividend rate in exchange for the option to convert their shares into common shares. This can be beneficial for the issuing firm because it allows them to raise capital at a lower cost than if they had issued non-convertible preferred shares.

The Issuing Firm Benefits from Issuing Convertible Preferred Shares, Because