CFA Practice Question

There are 191 practice questions for this study session.

CFA Practice Question

A company can benefit from callable common shares because it ______

I. can buy back the shares at a lower price and sell them at a higher price.
II. can reduce dividend payments.
III. facilitates raising capital when issuing such shares.
Correct Answer: I and II

Such shares are not as appealing to investors as regular common shares due to the call option embedded.

User Contributed Comments 4

User Comment
Shaan23 Why is III incorrect. If a company sells a callable common share to an investor it will raise capital.
vatsal92 Shaan23: They are asking the scenario after such shares are issued and subsequently called back.
CFAToad Also, callable shares represent risk to the shareholder, as the corporation can place a ceiling on gains. So the security will be less valuable, decreasing access to capital. But it would also serve to protect current shareholders by decreasing dilution.
khalifa92 III. is for putable options

the company give u 10$ share
u give it back 5$ share
cheap capital
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