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.