Question

You own one share of a cumulative preferred stock that pays quarterly dividends. The firm has recently suffered some financial setbacks and has failed to pay the last two dividends. However, new funding has been arranged and the firm intends to restore all dividends, both common and preferred, this quarter. As a preferred shareholder, you should expect to receive the equivalent of ____ quarter(s) of dividends when the next dividend is paid.

Answer 1

Answer:

3 quarters of dividends are to be paid to preferred shareholders  when the next dividend is paid

Explanation:

The preferred cumulative shareholders were owed 2 quarters of dividends prior to now.Since the company has now resolved to pay all dividends in  arrears alongside the ones for the current quarter, it is naturally expected that the preferred stockholders will not only receive dividends for the current quarter but also with the dividends in arrears of 2 previous quarters.

From the above, the the dividends expected now are for 3 quarters overall.