Question : Assertion-Reason Questions: Chapter - Sources of Business Finance
Questions : Equity Shares and Preference Shares
Assertion: Equity shares provide higher returns to shareholders compared to preference shares.
Reason: Equity shares do not carry any ownership rights.
Option 1: Both assertion and reason are true, and the reason is the correct explanation of the assertion.
Option 2: Both assertion and reason are true, but the reason is not the correct explanation of the assertion.
Option 3: Assertion is true, but the reason is false.
Option 4: Both assertion and reason are false.
Correct Answer: Assertion is true, but the reason is false.
Solution : The correct answer is (c) Assertion is true, but the reason is false.
This assertion is true. Equity shares have the potential to provide higher returns to shareholders than preference shares because equity shareholders have a greater claim on the company's profits and assets. Additionally, equity shareholders may benefit from capital appreciation if the company's share price increases.
This reason is false. Equity shares carry the most ownership rights of all types of securities. Equity shareholders own a portion of the company and have the right to vote on company decisions.
Therefore, the assertion is true, but the reason is false.
Assertion: Equity shares provide higher potential returns compared to preference shares.
Reason: Equity shareholders are given preference in dividend payments.
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