Question : Questions : Equity Shares and Preference Shares
Statement 1: Preference shareholders have a higher potential for capital appreciation compared to equity shareholders.
Statement 2: Preference shareholders have voting rights in company decisions.
Option 1: Statement 1 is true, and statement 2 is false.
Option 2: Statement 1 is false, and statement 2 is true.
Option 3: Both statements 1 and 2 are true.
Option 4: Both statements 1 and 2 are false.
Correct Answer:
Statement 1 is true, and statement 2 is false.
Solution : The correct answer is (a) Statement 1 is true, and statement 2 is false.
Statement 1 is true. Preference shareholders typically receive a fixed dividend, which means that their income is more predictable than that of equity shareholders. Equity shareholders, on the other hand, are entitled to a share of the company's profits, which means that their income can fluctuate depending on the company's performance. As a result, preference shareholders may be more willing to hold their shares for the long term, which could lead to higher capital appreciation.
Statement 2 is false. Preference shareholders typically do not have voting rights in company decisions. This is because they are considered to be creditors of the company, rather than owners. Equity shareholders, on the other hand, have voting rights because they are the owners of the company.
