CFA Level I · CFA Level I Exam · Equity Jurisdictions, Classes, and the Voting Process
A firm's Class A shares (one vote each) trade at a lower price than its otherwise identical Class B shares (ten votes each). The price difference is most likely explained by:
The price difference is most likely a voting-rights premium on Class B shares. Since the shares are otherwise identical, dividend entitlement and redemption features do not differ, so the market is pricing the extra control that ten votes per share provides.
- AA lower dividend entitlement for Class A shares
- BA premium for the superior voting rights of Class BCorrect
- CA conversion feature making Class A redeemable
Explanation
When economic rights are identical, a price gap reflects the value placed on control through extra votes. The question states the shares are otherwise identical, so dividend entitlement and redemption features cannot explain the gap.
Did you get it right without looking?
One question tells you little. A timed set on Equity Jurisdictions, Classes, and the Voting Process shows your real accuracy, how long you take and where you lose marks.
More Equity Jurisdictions, Classes, and the Voting Process questions
- Compared with common shareholders, holders of cumulative preference shares are most likely entitled to:
- A company has issued ordinary shares and cumulative preference shares. If the company skips a preference dividend this year, the unpaid amou…
- A founder-controlled company has Class A shares with one vote each and Class B shares with ten votes each. The founder owns all 2 million Cl…
- A company has 6,000,000 Class A shares with one vote each and 1,000,000 Class B shares with five votes each. An investor owns 600,000 Class …
- A company has 10 director seats up for election and 1,000,000 shares outstanding, each with one vote per seat under cumulative voting. A min…
- A shareholder cannot attend the annual general meeting and appoints another person to vote on her behalf according to her written instructio…