Equity securities

Cumulative preferred stock protects investors by requiring that any omitted or missed dividends accumulate and be paid in full before any dividends can be distributed to common shareholders. In contrast, non-cumulative preferred stock does not accumulate unpaid dividends, meaning missed payments are permanently lost to the investor.

Preferred stock is an equity security that typically pays a fixed dividend, expressed as a percentage of par value, before common shareholders receive any payouts. Option A is incorrect because preferred stock pays dividends rather than interest, which is a feature of debt instruments.

Common stockholders are the residual owners of a corporation, granting them voting rights and a claim on remaining assets after creditors are paid. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.

• !Common stockholders are the residual owners of a corporation, granting them voting rights and a claim on remaining assets after creditors are paid.
• !Preferred stock is an equity security that typically pays a fixed dividend, expressed as a percentage of par value, before common shareholders receive any payouts.
• !Cumulative preferred stock protects investors by requiring that any omitted or missed dividends accumulate and be paid in full before any dividends can be distributed to common shareholders.

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