The benefit of buying preferred shares in a company that pays cumulative dividends is that 1. Their shares typically trade for higher prices 2. Even if it misses a dividend payment, you will be owed that dividend in the future 3. None of the above are correct

The benefit of buying preferred shares in a company that pays cumulative dividends is that 1. Their shares typically trade for higher prices 2. Even if it misses a dividend payment, you will be owed that dividend in the future 3. None of the above are correct

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

(Multiple Choice)

The benefit of buying preferred shares in a company that pays cumulative dividends is that

1. Their shares typically trade for higher prices

2. Even if it misses a dividend payment, you will be owed that dividend in the future

3. None of the above are correct

4. They are not allowed to miss a dividend payment

5. Their common shares tend to pay dividends

Definition Definition Type of stock which is granted priority over dividend distributions as compared to common stockholders. Preferred stocks also do not carry any voting rights. Notably, in a case where a company is going to be liquidated, preferred stockholders have a priority claim on the value of assets of the company as quoted in the balance sheet, as compared to the common stockholders.

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