Question : What does the term "callable" mean in relation to preference shares?
Option 1: The right to convert preference shares into equity shares
Option 2: The obligation of the company to redeem preference shares
Option 3: The option for the company to repurchase preference shares
Option 4: The requirement to pay a fixed dividend on preference shares
Correct Answer: The option for the company to repurchase preference shares
Solution : The correct answer is (c) The option for the company to repurchase preference shares.
When preference shares are described as "callable," it means that the company has the option, but not the obligation, to repurchase or redeem the preference shares from shareholders at a predetermined price and within a specified time period. The call feature gives the company the right to call back or repurchase the preference shares before their maturity or at a specified call date.
Therefore, when preference shares are described as "callable," it means that the company has the option to repurchase or redeem the shares from shareholders at a predetermined price and within a specified time period.
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