Cumulative preferred stock

Question

Quizplus · Accepted Answer

Cumulative preferred stock requires dividends in arrears to be carried over into the next period, meaning that if a dividend is missed in one period, it must be paid before any dividends can be paid on common stock in subsequent periods. This make this type of preferred stock highly attractive to investors who seek a reliable stream of income.

B) This statement is incorrect. Cumulative preferred stock does not typically have voting rights or a voice in the management of the company.

C) This statement is partially correct. Cumulative preferred stock does have a claim to dividends before common stock, but it does not necessarily have a higher claim than bonds.

D) This statement is incorrect. Cumulative preferred stock typically has a lower required return than common stock because it is less risky.

Cumulative Preferred Stock