Face value of debentures is more than face value of shares
Equity shares have higher risk than debt
Equity shares are easily saleable
All of the three above
Answer is Right!
Answer is Wrong!
The correct answer is: B. Equity shares have higher risk than debt.
Equity shares are riskier than debt because they represent a claim on the company’s assets that is subordinate to the claims of debt holders. This means that if the company goes bankrupt, equity holders will only receive a return on their investment if debt holders have been paid in full.
Debt, on the other hand, is a loan that the company must repay with interest. This means that debt holders have a legal right to be repaid, even if the company goes bankrupt. As a result, equity shares are considered to be a riskier investment than debt, and investors demand a higher return on equity shares to compensate for this risk.
Here is a brief explanation of each option:
- A. Face value of debentures is more than face value of shares. This is not true. The face value of debentures and shares is usually the same.
- B. Equity shares have higher risk than debt. This is true. Equity shares are riskier than debt because they represent a claim on the company’s assets that is subordinate to the claims of debt holders.
- C. Equity shares are easily saleable. This is not true. Equity shares are not as easily saleable as debt because they are not traded on an exchange.