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Question

Difficulty: EasyThe Capital Market: Stock Exchange, Securities, and Trading

Match each capital market security listed on the left with its correct defining feature or investor right on the right.

  • Ordinary SharesEquity ownership carrying voting rights and variable dividends based on company profit
  • Preference SharesEntitlement to a fixed dividend rate paid before distribution to ordinary shareholders
  • DebenturesLong-term debt instrument earning a fixed interest rate regardless of company profitability

Answer

Ordinary Shares match with equity ownership carrying voting rights and variable dividends; Preference Shares match with entitlement to a fixed dividend rate paid before distribution to ordinary shareholders; Debentures match with long-term debt instrument earning a fixed interest rate regardless of company profitability.
Ordinary shares represent ownership with voting rights and variable dividends, preference shares grant priority to fixed dividends, and debentures represent loan capital with fixed interest.

Step-by-Step Solution

1
Analyze the nature of Ordinary Shares.
Ordinary shares constitute equity capital, offering ownership rights, voting power, and variable dividends.
Equity holders own the business and take the residual financial risk and reward.
2
Analyze the nature of Preference Shares.
Preference shares carry preferential rights to fixed dividends prior to ordinary share dividends.
They take precedence during dividend allocation, though usually without voting rights.
3
Analyze the nature of Debentures.
Debentures are debt securities representing long-term loans with fixed interest obligations.
Debenture holders are creditors of the firm, not owners.

Key Concept

Characteristics of Capital Market Securities
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Topics

The Capital Market: Stock Exchange, Securities, and Trading

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