Canadian Securities Course (CSC) Practice Exam

What is the main feature of retractable preferred shares?

1. They provide a higher dividend yield than common shares

2. They protect against interest rate increases

3. They can be converted into common stock

4. They can force the company to buy them back

The correct answer is: They can force the company to buy them back

A - While it is true that preferred shares often offer higher dividend yields than common shares, this is not a defining feature of retractable preferred shares. Other types of preferred shares can also provide higher dividends than common shares. B - Retractable preferred shares do not protect against interest rate increases. This feature is often associated with adjustable-rate preferred shares. C - The ability to convert into common stock is a feature of convertible preferred shares, but not necessarily retractable preferred shares. D - This is the correct answer. Retractable preferred shares give the shareholder the right to force the company to buy back their shares at a predetermined price, providing a form of protection and exit strategy for investors. This is the main feature that sets retractable preferred shares apart from other types of preferred shares.