Question

The rate of dividend on preference shares is —

• A. Fixed
• B. Variable
• C. Semi-variable
• D. None of these

Hint:

Preference shares provide steady returns, making them suitable for risk-averse investors.

Answer 1

The Correct Option is A

Step 1: Understanding Preference Shares.
Preference shares are a class of shares that provide shareholders with a fixed dividend before any dividend is paid to equity shareholders.
They are called "preference" shares because they have preferential rights over equity shares in dividend payment and capital repayment.
Step 2: Rate of Dividend.
The dividend rate on preference shares remains fixed at a predetermined percentage mentioned at the time of issue.
This fixed rate ensures regular income to investors, regardless of the company's profit fluctuations.
Step 3: Analysis of options.
- (1) Fixed: Correct — the dividend rate does not change annually.
- (2) Variable: Incorrect — equity shares may have variable returns.
- (3) Semi-variable: Incorrect — not applicable to preference shares.
- (4) None of these: Incorrect.
Step 4: Conclusion.
Thus, the dividend on preference shares is always fixed.