What are the differences between 5% $1 preference shares at $16k & $1 redeemable preference shares at $2k?

Answer 1

5% specifies the dividend rate of the preference share and is a percentage of the par value ($1 in this case), in other words 5 cents.

With the redeemable preference shares, the holder can demand that the issuer buys them back at a fixed price (useful if the market price drops below this).

The dividend rate of the redeemable preference shares is not given (it's possible but not certain that there isn't one) so it is not possible to say how this compares to 5%.

The rights associated with individual preference shares vary, so there may well be other differences. Presumably they also relate to different companies, which is of course the most important difference!

Answer 2

There's a significant error in the answer above. In North America, "redeemable" preferred shares cannot be retracted by the holder. The redemption feature applies only to the issuer; that is, the company that issued the shares may redeem them at a set price, usually par value, at a fixed date in the future. On that date, the holder has no rights to retract his shares.

The feature that enables the holder to cash in his shares at a fixed price upon a fixed future date is known as "retraction" or, sometimes, "extension," or, sometimes, "conversion" (into common shares). The share is said to be extendible, retractable or convertible upon that future date.

When examining preferred shares with redemption/retraction/extension dates it's necessary to relate today's market price to all of these future events, dates & prices. For example, with a redeemable pfd now trading at 27.25 whose redemption price/date would be 25.00/september 2008, the risk is that company will decide to redeem & there's nothing investor can do. The loss will eat into the yield of the preferred. This is a trap to avoid.