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Answer: Providing fixed dividends, which reduces uncertainty about future cash flows.
**Explanation:** - **Option A** is correct because preference shares typically offer fixed dividends, which account for a significant portion of their total return. This fixed nature reduces uncertainty about future cash flows, making them less risky compared to common shares. - **Option B** is incorrect. While preference shareholders are entitled to a fixed amount (par value) during liquidation, this is not guaranteed if the company faces financial difficulties, thereby not making it a definitive reason for lower risk. - **Option C** is incorrect. Unlike common shares, where a larger portion (or all) of the total return may come from price appreciation, preference shares derive most of their return from dividends, further emphasizing their lower risk profile.
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Preference shares are considered less risky than common shares primarily due to their characteristic of:
A
Providing fixed dividends, which reduces uncertainty about future cash flows.
B
Offering a guaranteed return in the event of company liquidation, though this is not assured during financial distress.
C
Generating a larger proportion of total return from future price appreciation, unlike common shares.