Question

Cumulative preferred stock is entitled to receive current dividends plus ___________ before any future common dividends can be paid?

1) a fixed dividend
2) a variable dividend
3) a percentage of profits
4) a percentage of sales

Answer 1

Cumulative preferred stockholders must receive their promised dividends in addition to any owed past dividends before common shareholders. Dividends represent a rate of return to investors, similar to capital gains from selling shares at a higher price.

Step-by-step explanation:

Cumulative preferred stock is entitled to receive current dividends plus a fixed dividend before any future common dividends can be paid. When a company pays a dividend, it distributes some of its profits to shareholders. The rate of return for investors can come through dividends or through capital gains, which occur when an investor sells the stock for more than the purchase price.