Financial Industry Regulatory Authority (FINRA) Practice Exam 2025 - Free FINRA Practice Questions and Study Guide

Adjustable rate preferred stock is designed to yield a variable interest rate that fluctuates based on prevailing market conditions, often linked to a specific benchmark like Treasury rates or LIBOR. This feature allows investors to benefit from rising interest rates, differentiating adjustable rate preferred stock from other types of preferred shares that typically offer fixed dividends.

In contrast, participating preferred stock provides an opportunity for investors to receive additional dividends beyond the fixed rate, but it does not have a variable interest rate based on market conditions. Convertible preferred stock provides the option to convert into common shares, but its dividend is usually fixed and does not change with market conditions. Callable preferred stock gives the issuer the right to redeem the stock before its maturity, again implying a fixed dividend rate rather than a variable one.

Thus, the nature of adjustable rate preferred stock makes it unique and correctly aligned with the question regarding variable interest based on market conditions.