Question : Questions : Equity Shares and Preference Shares
Statement 1: Preference shareholders have 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.
This statement is true. Preference shares are a type of hybrid security that has characteristics of both stocks and bonds. They typically have a fixed dividend rate, but they may also have the potential to appreciate in value if the company performs well. Equity shares, on the other hand, have no guaranteed dividend payments, but they have the potential to appreciate in value more than preference shares if the company is very successful. However, equity shares are also riskier than preference shares, as equity shareholders are paid after all other creditors in the event of liquidation.
This statement 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.
