Answer:
a. Convertible, d. Noncumulative
Explanation:
The feature that it can be exchanges for common stock means that the holders of these preferred share have an option to convert their preferential holdings to common stock at and within predetermined period of time.
However since it says " the dividends in arrears are lost", it means that these preferred shares are non-cumulative. As the holder of this type of shares, you have no right to receive past dividends should the company begin to issue preferred dividends again. If the issuing company incurs losses in that year, it can choose to skip paying dividends on these convertible, non-cumulative preferred shares.
The features that are present in the preferred stock issued by Saturn are convertible and Noncumulative. This implies the correct answer is A and B.
Since the shares of preferred stock issued by Saturn Corporation can be exchanged for common stock, it implies that the investors have the discretion to convert their preferred stock to common shares under some particular conditions. This implies the preferred stock is convertible
From the given question, we also know that converting the preferred stock to common stock would mean that the shareholders would not receive any dividends in areas “dividends in arrears are lost”, then it implies that the preferred stock is Noncumulative.
It also means the investors do not have any right in the future to receive dividends if the Saturn Corporation refuses not to pay. This also means that shareholders cannot get past dividends if Saturn Corporation re-introduced dividends on preferred stock.
One of the features of preferred shares is convertibility but in most cases, the boards of directors are required to vote before a preferred stock can be converted. Also, preferred stock can converts automatically on a certain date.
If a preferred stock is noncumulative, it means the shareholders will not receive omitted dividends.
Therefore, the features that are present in the preferred stock issued by Saturn are convertible and Noncumulative
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