The type of business finance that entitles the holder to a fixed rate of dividend is______________--

Analyze the question: It asks which type of business finance gives the holder a fixed rate of dividend. The key word is "dividend", which is paid to shareholders (owners), not to lenders.

Explain the concept:

• Bank loan: Borrowed money. The lender receives interest, not dividends.
• Debenture: A long-term loan to a company. The holder receives a fixed rate of interest, not a dividend. Debenture holders are creditors, not owners.
• Preference shares (preferred stock): The holder is a part-owner of the company, but has priority over ordinary shareholders. Preference shareholders receive a fixed rate of dividend, paid before ordinary shareholders get anything.
• Ordinary shares: The dividend varies with company profits.
• Semi-fixed: Not a standard type of business finance.

Solution:

1. Is the payment a dividend? That rules out bank loans and debentures, which pay interest.
2. Is the dividend fixed? Preferred stock fits this, because the rate is stated when the shares are issued.
3. "Semi-fixed" is not a recognised financing instrument.

So the answer is C. preferred stock.

Tip: Link the terms like this:

• Debenture → Interest (creditor)
• Preference share → Fixed dividend (owner with priority)
• Ordinary share → Variable dividend (owner who takes the most risk)

If the question says "dividend", think shares. If it says "interest", think loans or debentures.