Q77 equity. Pg 135. Ans is C(no explanation given)
Can someone help me with the second statement. It says preference shares are less risky than common shares because amt AMT of dividend is fixed. However, shouldn’t the reason be that it is more safe because it is higher in priority list in case of liquidation. Since co. Are not obligated to pay dividend to them and in most cases their dividend don’t accumulate, this feels like a incomplete statement.
Please help
See there are many aspects because of which preference share is less risky. Divinend can also be considered one of the reason. So you are digging too much into it. So don’t think too much. The theme is is pref shares less risky than equity. And it’s correct. They can’t mention every reason here so mentioned the dividend reason. Yes it’s not compulsory so for equity also company doesn’t have obligation, but whenever company want to distribute dividend., PSH will get first & that too a certain amount. ESH may get less may get more. So yes from a dividend angle point of view PS is less risky than CS
Hope it helps