What are preference shares? Explain types of preference shares.

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Understand the Problem

The question is asking for an explanation of preference shares and the types of preference shares, specifically cumulative and non-cumulative preference shares. It seeks to clarify their characteristics and differences.

Answer

Preference shares offer fixed dividends with types like cumulative, non-cumulative, participating, and convertible.

Preference shares (preferred stock) are equity securities that receive fixed dividends before common stock dividends. Types include: 1. Cumulative: Unpaid dividends accumulate until paid. 2. Non-cumulative: Unpaid dividends do not accumulate. 3. Participating: Eligible for extra dividends. 4. Convertible: Can be converted into common shares.

Answer for screen readers

Preference shares (preferred stock) are equity securities that receive fixed dividends before common stock dividends. Types include: 1. Cumulative: Unpaid dividends accumulate until paid. 2. Non-cumulative: Unpaid dividends do not accumulate. 3. Participating: Eligible for extra dividends. 4. Convertible: Can be converted into common shares.

More Information

Preference shares prioritize dividend payments and can carry features like dividend accumulation, conversion to common stock, and participation in extra earnings.

Tips

A common mistake is confusing cumulative and non-cumulative shares. Remember: cumulative shares accumulate unpaid dividends.

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