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Which of the following statements is true? Select the correct answer from the options listed below Preference shares offer investors a lower level of risk than ordinary shares Preference shares are risk neutral to investors Preference shares offer a higher level of risk than ordinary shares Preference shares offer investors the right to become managers

Question

Which of the following statements is true?
Select the correct answer from the options listed below
Preference shares offer investors a lower level of risk than ordinary shares
Preference shares are risk neutral to investors
Preference shares offer a higher level of risk than ordinary shares
Preference shares offer investors the right to become managers

Which of the following statements is true? Select the correct answer from the options listed below Preference shares offer investors a lower level of risk than ordinary shares Preference shares are risk neutral to investors Preference shares offer a higher level of risk than ordinary shares Preference shares offer investors the right to become managers

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GeorgeElite · Tutor for 8 years

Answer

Preference shares offer investors a lower level of risk than ordinary shares.

Explain

## Step 1<br />Let's analyze each of the four options step-by-step:<br /><br />1) Preference shares offer investors a lower risk than ordinary shares: This statement is generally true since preference shares have priority when it comes to the payment of dividends and during incidences of company liquidation. Preference shareholders thus have a security that ordinary shareholders lack.<br /> <br />2) Preference shares are risk neutral to investors: It is not accurate to say this statement because any investment contains a measure of risk. While preference shares offer less risk compared to common shares, saying that they are 'risk-neutral' might imply they include no risk at all, which is incorrect.<br /><br />3) Preference shares offer a higher level of risk than ordinary shares: This statement is incorrect. As we have established, preference shares are less risky when compared to common, or ordinary, shares.<br /><br /> 4) Preference shares offer investors the right to become managers: This statement is generally false. Investing in preference shares gives no automatic right for an investor to become a manager. While shareholders get voting rights, this does not equate to a managerial role.
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