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Ch.1 · Comparing Financial Products · medium

Preference shares differ from equity shares in which of the following ways?

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EXPLANATION

Preference shares carry a fixed dividend rate and have priority over equity shares in both dividend payment and liquidation claims. However, preference shareholders typically have limited or no voting rights.

A.Preference shareholders have voting rights; equity shareholders do not

B.Preference shares are traded on stock exchanges; equity shares are not

C.Preference shareholders receive fixed dividends and have priority over equity holders in liquidation [✓ Correct]

D.Preference shares carry no risk; equity shares carry all the risk

EXPLANATION

Preference shares carry a fixed dividend rate and have priority over equity shares in both dividend payment and liquidation claims. However, preference shareholders typically have limited or no voting rights.

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