SIE practice questioneasyPreferred Stock
Preferred stock is called 'cumulative' because:
- AMissed dividends must be paid before common dividends.✓ Correct answer
- BIt accumulates voting rights each year.
- CIt accumulates more shares when stock splits occur.
- DIt accumulates higher interest on cash holdings.
Explanation
Why A — Missed dividends must be paid before common dividends.
Cumulative preferred stockholders receive any missed dividends before common shareholders can be paid. The other choices misstate the features of cumulative preferred stock.
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