Preferred Stock
A company has cumulative preferred stock outstanding with an annual dividend of $5 per share. The company failed to pay dividends for the past two years. How much must be paid to preferred shareholders before common shareholders receive any dividend?
Cumulative preferred stock requires all missed dividends (dividends in arrears) plus the current dividend to be paid before common shareholders receive anything. Two years of arrears ($10) plus the current year dividend
Complete Analysis & Legal Rationale
Cumulative preferred stock requires all missed dividends (dividends in arrears) plus the current dividend to be paid before common shareholders receive anything. Two years of arrears ($10) plus the current year dividend ($5) equals $15 per share.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Matches the verified teaching point in the explanation.
Does not match the governing securities rule described in the explanation.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.