Understanding Preference Shares

What are preference shares?

• Preference shares do not provide any dividends or liquidation priority.

• Preference shares are only available to institutional investors.

• Preference shares are a type of debt security with variable interest rates.

• Preference shares are a type of equity security that provides fixed dividends and priority over common shares in liquidation.

How do preference shares differ from ordinary shares?

• Ordinary shares guarantee fixed dividends and priority in liquidation.

• Preference shares provide voting rights and variable dividends.

• Preference shares have no dividends and no liquidation priority.

• Preference shares differ from ordinary shares in that they have fixed dividends and priority in liquidation, while ordinary shares provide voting rights and variable dividends.

What are the main advantages of investing in preference shares?

• High risk of loss

• No voting rights

• Guaranteed capital appreciation

• The main advantages of investing in preference shares include fixed dividends, priority in liquidation, and potential for conversion to common shares.

What are the disadvantages of preference shares?

• Higher priority in liquidation

• Disadvantages of preference shares include limited voting rights, fixed dividends, potential lack of liquidity, and lower priority in liquidation.

• Unlimited voting rights

• High potential for capital gains

Can preference shares be converted into ordinary shares?

• Yes, preference shares can be converted into ordinary shares if the terms allow for it.

• Preference shares are always redeemed for cash only.

• Ordinary shares can be converted into preference shares.

• Preference shares cannot be converted under any circumstances.

What is a cumulative preference share?

• A cumulative preference share is a type of common stock.

• A cumulative preference share is a preferred stock that accumulates unpaid dividends.

• A cumulative preference share does not pay dividends.

• A cumulative preference share is a bond that pays fixed interest.

What is a non-cumulative preference share?

• A non-cumulative preference share is a bond that pays interest only when the company is profitable.

• A non-cumulative preference share is a type of common stock that accumulates dividends.

• A non-cumulative preference share is a type of preferred stock that does not accumulate unpaid dividends.

• A non-cumulative preference share guarantees fixed dividends regardless of company profits.

What does it mean for a preference share to be redeemable?

• A redeemable preference share cannot be sold by the issuing company.

• A redeemable preference share pays dividends only if the company is profitable.

• A redeemable preference share is automatically converted into common stock.

• A redeemable preference share can be bought back by the issuing company at a predetermined price.

How is the dividend on preference shares typically calculated?

• The dividend is calculated as total profit divided by number of shares.

• The dividend is determined by the market price of the shares.

• The dividend is based on the company's annual revenue.

• The dividend is calculated as nominal value x dividend rate.

What rights do preference shareholders have compared to ordinary shareholders?

• Preference shareholders have more voting rights than ordinary shareholders.

• Ordinary shareholders receive dividends before preference shareholders.

• Preference shareholders can influence company management decisions.

• Preference shareholders have priority in dividends and asset distribution but usually lack voting rights.