Characteristics of Cumulative Preferred Shares

Very Easy Equity Markets And Instruments Preferred Shares

Preferred shares are a type of equity instrument that combines characteristics of both debt and equity securities. They typically provide shareholders with a fixed dividend payment before any dividends are paid to common shareholders. Preferred shares can be categorized into various types, including cumulative, non-cumulative, and convertible preferred shares.

Given this information, answer the following question:

What is a primary characteristic of cumulative preferred shares?

Cumulative preferred shares do not require the company to pay dividends if it is not profitable.

Cumulative preferred shares allow shareholders to accumulate unpaid dividends, which must be paid before any dividends are paid to common shareholders.

Cumulative preferred shares give shareholders voting rights in company decisions.

Hint

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