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CFA Level I · CFA Level I Exam · Equity Jurisdictions, Classes, and the Voting Process

An investor holds participating preference shares with a 5% stated dividend. The company pays the preference dividend and then a dividend to ordinary shareholders that exceeds the preference rate. Compared with non-participating preference shares, the participating shares most likely:

Participating preference shares let the holder receive more than the stated 5% when ordinary shareholders receive larger distributions, whereas non-participating preference shares are limited to the stated dividend. Participation concerns sharing in extra payouts, not debt conversion or additional voting rights.

  1. Aentitle the holder to additional dividends beyond the stated 5%Correct
  2. Bgive the holder the right to convert into debt
  3. Cgive the holder extra votes per share

Explanation

Participating preference shares share in additional distributions with ordinary shareholders, typically when ordinary dividends or liquidation proceeds exceed set levels. Non-participating shares receive only the stated dividend. Participation does not create debt conversion rights or extra votes.

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