Question

Do any three questions out of four questions. Each question carries 4 marks.
(i) Write any four differences between 'Share' and 'Debenture'.

Hint:

Shares give ownership and voting rights, whereas debentures give fixed returns with no ownership rights.

Answer 1

Step 1: Understanding 'Shares' and 'Debentures'.
- Share represents the ownership interest in a company. Shareholders are owners and have a claim on the company's profits in the form of dividends.
- Debenture represents a debt or loan taken by the company. Debenture holders are creditors and receive fixed interest (debenture interest) but do not have a claim on the company's profits.
Step 2: Four Key Differences:
1. Nature of Investment:
- Shares represent ownership in the company.
- Debentures represent a loan taken by the company.
2. Return:
- Shareholders earn a dividend which is not fixed and depends on the company's profits.
- Debenture holders receive a fixed rate of interest, regardless of the company's profit.
3. Risk:
- Shares are riskier as the returns depend on the company's performance. If the company does poorly, dividends may not be paid.
- Debentures are less risky as they provide a fixed interest payment. However, if the company defaults, debenture holders may face losses.
4. Voting Rights:
- Shareholders have voting rights in the company and can influence the company’s decisions at general meetings.
- Debenture holders do not have voting rights and cannot influence the company’s decisions.
Step 3: Conclusion.
Shares represent ownership, while debentures represent debt, with different rights, risks, and returns for investors.