The Cumulative Feature of Preferred Stock

question 7

Multiple Choice

The cumulative feature of preferred stock

• A) Limits the amount of cumulative dividends to the par value of the preferred stock.
• B) Requires that dividends not paid in any year must be made up in a later year before dividends are distributed to common shareholders.
• C) Means that the shareholder can accumulate preferred stock until it is equal to the par value of common stock at which time it can be converted into common stock.
• D) Enables a preferred stockholder to accumulate dividends until they equal the par value of the stock and receive the stock in place of the cash dividends.

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Definitions:

Heuristics

Cognitive shortcuts or rules of thumb that simplify decision making, often leading to quick but sometimes inaccurate judgments or predictions.

Decision-making Biases

Systematic errors in thinking that affect the decisions and judgments that people make.

Persuasive Argument Theory

A theory suggesting that the process of persuasion involves the presentation of arguments, which leads to attitude change when the arguments are received and accepted by an individual.

Actor-observer Difference

A cognitive bias where people tend to attribute their own actions to external situations while attributing others' actions to their personalities or dispositions.