- CFA Exams
- CFA Level I Exam
- Topic 5. Equity Investments
- Learning Module 4. Overview of Equity Securities
- Subject 2. Types and Characteristics of Equity Securities
CFA Practice Question
A company can benefit from callable common shares because it ______
II. can reduce dividend payments.
III. facilitates raising capital when issuing such shares.
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 |