Q. With reference to Equity Shares and Preference Shares, which are instruments in the Capital Market, consider the following statements:
1.Equity shareholders hold the right to vote and can claim assets of a company, while preference shareholders generally do not have voting rights.
2.Preference shares are non-redeemable in nature, similar to equity shares, but they receive a cumulative dividend before ordinary shareholders.
3.Both Equity and Preference shares are classified as high-security debt instruments.
Which of the statements given above is/are correct?
Answer: A
Notes:
Explanation:
Statement 1: Correct. Investors in equity shares hold the right to vote and claim assets. Preference shares do not have associated voting and membership rights.
Statement 2: Incorrect. Equity shares are non-redeemable in nature. While the text states preference shares guarantee cumulative dividend before ordinary shareholders, it does not classify them as non-redeemable (unlike equity shares). Preference shares are generally redeemable.
Statement 3: Incorrect. Shares (both equity and preference) are ownership instruments, not debt instruments. Bonds are referred to as high-security debt instruments.
