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Question 21 Which of the following statements is NOT true about ordinary shares: The potential gains for ordinary shareholders are unlimited. Ordinary shareholders expect a low rate of return as their investments are considered less risky in comparison to preference shareholders and lenders. Ordinary shareholders receive dividends only after lenders and preference shareholders have received their interest and dividends. Ordinary sharcholders are not entitled to a fixed rate of dividends. 3 pts

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Question 21
Which of the following statements is NOT true about ordinary shares:
The potential gains for ordinary shareholders are unlimited.
Ordinary shareholders expect a low rate of return as their investments are considered
less risky in comparison to preference shareholders and lenders.
Ordinary shareholders receive dividends only after lenders and preference
shareholders have received their interest and dividends.
Ordinary sharcholders are not entitled to a fixed rate of dividends.
3 pts

Question 21 Which of the following statements is NOT true about ordinary shares: The potential gains for ordinary shareholders are unlimited. Ordinary shareholders expect a low rate of return as their investments are considered less risky in comparison to preference shareholders and lenders. Ordinary shareholders receive dividends only after lenders and preference shareholders have received their interest and dividends. Ordinary sharcholders are not entitled to a fixed rate of dividends. 3 pts

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AldenMaster · Tutor for 5 years

Answer

The statement 'Ordinary shareholders expect a low rate of return as their investments are considered less risky in comparison to preference shareholders and lenders.' is not true.

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## This question is asking which of the provided statements do not accurately describe attributes of ordinary shares.<br /><br />## For Step1, consider each statement individually and evaluate whether or not it is true.<br /><br />##### 1) 'The potential gains for ordinary shareholders are unlimited.' <br />Since ordinary share investments are essentially buying a partial ownership in a corporation, if the company thrives, shareholders can partake in its success in the form of increased stock value. Accordingly, this statement is indeed true.<br /><br />##### 2) 'Ordinary shareholders expect a low rate of return as their investments are considered less risky when compared to preference shareholders and lenders.' <br />Contrarily, each class of shares correspond to varying sort of risk: while lenders are safeguarded by promise of regular interest payment and precedence in liquidation case, it is ordinarily constituted that preference shares guarantees dividends and are as relatively low risk when put side by side with common stock/ordinary shares. As such, foreseen return from ordinary stocks pivots on greater risk, Not less, undermining the validity of this statement.<br /><br />##### 3) 'Ordinary shareholders receive dividends only after lenders and preference shareholders have received their interest and dividends.' <br />In essence, dividends payable to ordinary shareholders trail behind required payments to lenders in terms of interest and the promised returns to preference shareholders. So, it is indeed true. <br /><br />##### 4) 'Ordinary shareholders are not entitled to a fixed rate of dividends.' <br />Companies hold the discretion over the rate of regular dividends offered to key stakeholders beyond that irrevocably designated prefered strpos, including concerning ordinary shares. The vagaries of profits year to year is a decisive factor. Thus, this claim aligns with fact and is indeed substantially true.
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