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    Question

    Which of the following features clearly distinguishes

    bonds from equity shares?
    A Ownership dilution Correct Answer Incorrect Answer
    B Dividend entitlement Correct Answer Incorrect Answer
    C Assured fixed returns Correct Answer Incorrect Answer
    D Variable returns based on profits Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    The fundamental difference between bonds and equity instruments lies in the nature of returns and the relationship with the issuing company: • Bonds are fixed-income instruments. They represent a debt obligation for the issuer, requiring regular payment of interest (coupon) and repayment of principal at maturity. Bondholders are creditors, not owners. • Equity shares signify ownership in the company. Shareholders may receive dividends, but these are not guaranteed and depend on the company’s profitability and dividend policy. Equity also involves ownership dilution when new shares are issued.

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