You own one share of a cumulative preferred stock that pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ________ quarter(s) of dividends when the next dividend is paid.
A) 0
B) 1
C) 2
D) 3
E) either 1, 2, or 3

Question

Quizplus · Accepted Answer

Cumulative preferred stock ensures that missed dividends are accumulated and paid out to shareholders before any dividends are paid to common shareholders. Since the firm missed two dividends and is paying the current quarter's dividend, you should receive dividends for three quarters in total.

You Own One Share of a Cumulative Preferred Stock That