Canadian Securities Course (CSC) Practice Exam

Which of the following types of preferred shares pays no dividend until a future maturity date and defers taxes until then?

1. Retractable preferreds

2. Foreign-pay preferreds

3. Deferred preferred shares

4. Delayed floater preferred

The correct answer is: Deferred preferred shares

Deferred preferred shares are a type of preferred share that defers dividend payments until a future maturity date, allowing the issuer to defer taxes on those payments as well. None of the other options listed have this specific characteristic. Retractable preferreds, on the other hand, allow the shareholder the option to redeem their shares for a fixed amount at a future date. Foreign-pay preferreds are preferred shares issued by a non-domestic company and are subject to withholding taxes. Delayed floater preferred shares have a floating dividend rate that is tied to a benchmark interest rate, but they still have regular dividend payments. Therefore, deferred preferred shares are the only option that meets the specific requirements stated in the question.