Question

Convertible fixed stock:

1) pays a fixed dividend.
2) may be converted into the firm's common stock.
3) is equity.
Select the best option below.
Select one
a. 1, 2, and 3
b. 2 and 3
c. 1 and 3
d. 1 and 2

Answer 1

Convertible fixed stock can be converted into the firm's common stock but is not considered equity. It is a hybrid security that has characteristics of both debt and equity. so, the correct answer is b. 2 and 3.

Step-by-step explanation:

Convertible preferred stock has the characteristic of being able to be converted into the firm's common stock. Therefore, the correct options are 2) may be converted into the firm's common stock and 3) is equity.

Convertible preferred stock does not pay a fixed dividend; instead, it typically pays a stated rate of dividend until converted. Therefore, option 1) pays a fixed dividend is not applicable to convertible preferred stock.

The accurate answer is b. 2 and 3.