Which of the following statements is TRUE?
A) Preferred stock usually has a stated or par value and, like bonds, this par value is not repaid at maturity because preferred stocks do not have a maturity date.
B) The par value for preferred stock, unlike bonds, is never paid back.
C) A preferred stock's cash dividend due each year is based on the stated dividend rate times the market value of the stock.
D) Some preferred stocks are cumulative with respect to dividends, meaning that if a company skips a cash dividend, it must pay it at some point in the future.
Answer: D
Explanation: D) Preferred stock usually has a stated or par value BUT UNLIKE bonds, this par value is not repaid at maturity because preferred stocks do not have a maturity date. The only time this par value would be paid to the shareholder is if the company ceases operations or retires the preferred stock. The cash dividend due each year is based on the stated dividend rate times the PAR VALUE of the stock.
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