Stock Split is a corporate action in which a company divides its existing shares into multiple shares. For example, in a 2-for-1 split, each existing share becomes two shares, and the share price is halved proportionately.

Key features of a stock split:

• The total number of shares increases, but the market capitalisation remains the same.
• The face value (par value) of each share decreases proportionately.
• Existing shareholders hold more shares, but the underlying value of their investment does not change.
• Companies typically do this to make shares more affordable and liquid for small investors, thereby increasing market participation.

Example: If a company has 1,00,000 shares at ₹100 each (market cap = ₹1 crore), after a 2-for-1 split, it has 2,00,000 shares at ₹50 each (market cap still = ₹1 crore).

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• This is a competency-based question testing application of financial concepts; the examiner expects you to define stock split and explain its mechanics with at least one feature or example.
• Key examiner checklist: definition ✓, number of shares increases ✓, market cap unchanged ✓, face value/price adjusts proportionately ✓.
• The source passages cover securities markets broadly but do not detail stock splits — so apply your standard Class 10 Financial Literacy/Markets knowledge here.
• Avoid writing an essay; 4 crisp points + a brief example is ideal for 4 marks.

| Basis | Equity Shareholders | Preference Shareholders |
|---|---|---|
| Dividend | Receive dividend after preference shareholders; rate is not fixed | Receive fixed rate of dividend on priority |
| Repayment | Capital repaid last, after preference shareholders | Capital repaid before equity shareholders at winding up |
| Voting Rights | Have full voting rights in company matters | Generally do not have voting rights |
| Risk | Bear higher risk | Bear comparatively lower risk |

Equity shareholders are the real owners of the company and bear maximum risk, while preference shareholders enjoy preferential treatment in dividend payment and capital repayment but have limited control over the company.

Source: Chapter 2, Securities Market

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• CBSE expects a tabular format for "differentiate between" questions — it earns marks quickly and is easy to read.
• Four clear points of difference = 4 marks. Each row should have a clear basis, not just vague statements.
• Key terms: fixed dividend, preferential rights, voting rights, winding up — examiners look for these specific words.
• Keep the concluding line brief; it adds context without padding.

(c) Reserves and Surplus — A part of the profit retained by the company for meeting future fund requirements is called Reserves and Surplus.

The key phrase is "retained by the company for future fund requirements," which directly defines Reserves and Surplus. Dividend is profit distributed to shareholders; Interest is paid on borrowed funds; Revenue is income earned — none of these involve retention of profit for future use.

(a) Convertible Bond — A bond that gives the investor the option to convert it into equity shares at a fixed conversion price is called a Convertible Bond.

A convertible bond combines features of both debt and equity. The key phrase to remember is "option to convert into equity at a fixed conversion price," which uniquely identifies a convertible bond. The other options — Zero Coupon Bond (no periodic interest), Treasury Bills (short-term government instruments), and Commercial Paper (short-term corporate debt) — do not carry any conversion feature. Examiners expect you to directly identify the correct term.

(a) Preference shares — Their owners receive a fixed dividend before equity shareholders and have priority over equity shareholders in payment of surplus.

The question describes two key features: fixed/priority dividend and priority in surplus payment — both are classic characteristics of preference shares. Eliminate other options: bonus shares are free shares issued to existing shareholders, right shares are offered to existing shareholders at a discount, and equity shares carry variable dividends with no such priority.

(d) RBI

RBI (Reserve Bank of India) is the central bank and a market regulator, not a credit rating agency. CARE, ICRA, and FITCH are all credit rating agencies operating in India.

• CRISIL, CARE, ICRA, and FITCH are all credit rating agencies in India.
• RBI is the central bank/regulator of India's monetary system and securities market — it does not rate credit.
• In MCQs like this, eliminate options you recognise as credit rating agencies; what remains is the answer.

Maturity of a bond refers to the date on which the bond's life ends and the issuer repays the principal (face value) amount to the bondholder. It is the predetermined date when the loan agreement between the issuer and the investor expires and the final payment is made.

• Examiners expect two key points: (1) it is a specific date/period and (2) the principal is repaid on that date.
• Avoid confusing maturity with interest payment (coupon) — maturity is specifically about repayment of the original borrowed amount.
• Keep the answer factual and direct; no examples are needed for 2 marks.

(A) Both (A) and (R) are true and (R) is the correct explanation of (A).

Equity shareholders are owners of the company, and their voting rights in the AGM to pass resolutions is precisely what establishes this ownership status.

The right to vote in the AGM is the key feature that distinguishes equity shareholders as owners — they can influence company decisions. This voting right directly explains why they are considered owners, making (R) the correct explanation of (A). Examiners expect students to identify the logical link between the assertion and reason, not just whether both are true.

(D) Fixed Deposit Receipts

Fixed Deposit Receipts are not securities. As per SCRA, 1956, securities include shares, bonds, debentures, government securities, derivatives, and units of mutual funds — but not FDRs.

The SCRA, 1956 definition lists shares, bonds, scrips, stocks, government securities, derivatives, units of collective investment schemes, etc. as securities. Fixed Deposit Receipts (FDRs) are banking instruments issued by banks/NBFCs and are not listed under securities. Shares, debentures, and bonds are explicitly covered. Examiners expect direct identification of FDR as the odd one out.

A debenture is a debt instrument issued by a company to raise funds from the public. It is a marketable security through which the issuer (company) borrows money from investors and promises to repay the principal along with interest. Debentures are listed under 'Securities' as per the SCRA, 1956.

Source: What is the function of Securities Market?, Chapter 2

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• The passage mentions debentures as instruments traded in the securities market where buyers and sellers transact.
• SCRA, 1956 classifies debentures under "securities," which is the legal basis for the definition.
• For a 2-mark answer, mention: (1) it is a debt instrument, and (2) it is issued by a company to raise funds/capital. Mentioning the SCRA reference adds precision and earns full marks.