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CFA Level I · CFA Level I Exam · Equity Jurisdictions, Classes, and the Voting Process

A company has issued ordinary shares and cumulative preference shares. If the company skips a preference dividend this year, the unpaid amount most likely:

Unpaid dividends on cumulative preference shares build up as arrears and must be paid in full before the company can pay any dividend to ordinary shareholders. Non-cumulative shares lose the missed dividend, and conversion is a separate feature not triggered by skipping a payment.

  1. Alapses and is never owed
  2. Baccumulates and must be paid before ordinary dividendsCorrect
  3. Cconverts the preference shares into ordinary shares

Explanation

Cumulative preference shares carry forward unpaid dividends as arrears. These must be settled before any ordinary dividend is paid. Lapsing describes non-cumulative shares, and conversion is a separate feature, not triggered by a missed dividend.

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