Special Types of Preferred Stock

• Adjustable-rate (or floating rate) preferred stock (ARPS)

  • Variable dividend rate tied to interest rates on government securities
  • Can be sold at initially lower dividend rates

• Payment-in-kind (PIK) preferred stock

  • Doesn’t pay cash dividends, but rather pays in additional shares of preferred stock
  • Used primarily to finance takeovers
  • Not a major corporate financing tool

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