Which feature allows conversion of preferred stock into the issuer's common stock?

• A. Straight
• B. Cumulative
• C. Convertible
• D. Adjustable Rate

Answer: (C)

The feature being tested is the ability to convert preferred stock into the issuer’s common stock. A convertible preferred stock includes a provision that lets the holder exchange each preferred share for a specified number of common shares at a predetermined conversion ratio or price. This conversion option creates upside potential if the issuer’s common stock appreciates, while still providing the fixed or preferred dividend characteristics until conversion. The other features don’t enable conversion: straight indicates noncumulative or basic preferred stock with dividends that aren’t paid if skipped; cumulative means missed dividends accumulate and must be paid later; adjustable rate refers to changes in the dividend rate, not the ability to convert to common stock.