Question

"Preferred stock is issued with an "anti-dilutive" covenant. If the corporation declares a 5% stock dividend, which statements are TRUE?"

Answer 1

Answer: B. I and IV

Step-by-step explanation:

Anti-Dilutive clauses are made to ensure that when new common shares are issued, they do not reduce the value of the shares already there because new shares being issued reduces the value of individual shares.

To do this, when new shares are issued or dividends declared, the conversion price is reduced and the conversion ratio is increased so that the preferred stocks can be diluted into more shares thus keeping their value intact.