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Question
Preference shares are a hybrid form of financing because ______.
Options
Preference shares have the characteristics of both equity shares and overdraft.
Preference shares have the characteristics of both loan and debentures.
Preference shares have the characteristics of both equity shares and debentures.
Preference shares have the characteristics of both equity shares and cash credit.
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Solution
Preference shares are a hybrid form of financing because preference shares have the characteristics of both equity shares and debentures.
Explanation:
Preference shares are hybrid because they combine equity traits (dividends paid from profits; limited/no voting) with debt traits (fixed-rate dividend and priority in repayment), so they share characteristics of both equity shares and debentures.
