Investment Funds in Canada (IFIC) 2025 – 400 Free Practice Questions to Pass the Exam

Callable preferred shares are specifically designed to allow the issuing corporation the option to redeem them at its discretion, typically after a certain date. This feature provides flexibility to the company, as it can choose to redeem the shares when it is favorable for them, often depending on market conditions or changes in interest rates.

For instance, if interest rates decrease, a corporation might opt to redeem its callable preferred shares and reissue new shares at a lower rate, thus reducing its overall cost of capital. This redeemable nature gives companies the ability to manage their capital structure more effectively.

In contrast, cumulative preferred shares are designed to accumulate unpaid dividends, convertible preferred shares give holders the option to convert their shares into common shares, and market order shares do not pertain to preferred shares at all but rather refer to orders in the stock market for immediate execution at the current price. These features do not include a redemption option at the discretion of the issuing corporation, which distinctly sets callable preferred shares apart.