Question

Assertion (A): Preference shares are a hybrid form of financing.

Reason (R): Preference shares have characteristics of both equity shares and debentures.

Options

• Both (A) and (R) are true and (R) is the correct explanation of (A).

• Both (A) and (R) are true but (R) is not the correct explanation of (A).

• (A) is true and (R) is false.

• Both (A) and (R) are false.

Answer 1

Both (A) and (R) are true and (R) is the correct explanation of (A).

Explanation:

Preference shares are a type of financing that combines equity ownership with fixed returns, similar to debentures. They won’t give you any votes, but they do pay you fixed dividends, so they’re a mix of debt and stock. So, both the claim and the reason are right, and the reason explains the claim correctly.