Answer: have more uncertainty around future cash flows.

## Explanation Common shares are riskier than preference shares primarily because: 1. **Uncertainty of future cash flows**: Common shareholders' returns (dividends and capital appreciation) depend entirely on the company's performance and management's discretion. There is no obligation for the company to pay dividends to common shareholders. 2. **Preference shares have priority**: Preference shareholders receive fixed dividends before any dividends are paid to common shareholders. If a company faces financial difficulties, preference shareholders have a higher claim on assets and income. 3. **Liquidation hierarchy**: While option C is also true (common shares rank behind debt in liquidation), this is not the primary reason why common shares are riskier than preference shares. Both common and preference shares rank behind debt, but preference shares rank ahead of common shares. 4. **Option B is incorrect** because preference shares also don't have a guaranteed return in liquidation - they have priority over common shares but still rank behind debt holders. **Key takeaway**: The fundamental risk difference stems from the uncertainty of cash flows - common shareholders have no contractual right to dividends, while preference shareholders have a fixed dividend that must be paid before common dividends.

Author: LeetQuiz .