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Business Studies · 2025 · 6 marks
CBSE 2025 · Region 6 · Set 2 · Q32
which results in increase in fixed capital requirements. (a) Distinguish between 'Primary Market' and 'Secondary Market' on the basis of any six…
which results in increase in fixed capital requirements.
(a)
Distinguish between 'Primary Market' and 'Secondary
Market' on the basis of any six points.
OR
(b)
Explain the following factors affecting dividend decision
of a company:
(i)
Growth opportunities
(ii)
Cash flow position
(iii)
Stock market reaction
(iv)
Access to capital market
Marking-scheme solution
(a)
Differences between Primary market and Secondary
market:
| Primary market | Secondary market |
| There is sale of securities by new companies or further (new issues of securities by existing companies to investors). | There is trading of existing shares only. |
| Securities are sold by the company to the investor directly (or through an intermediary). | Ownership of existing securities is exchanged between investors. The company is not involved at all. |
| The flow of funds is from savers to investors, i.e. the primary market directly promotes capital formation | It enhances encashability (liquidity) of shares, i.e. the secondary market indirectly promotes capital formation |
| Only buying of securities takes place in the primary market, securities cannot be sold there | Both the buying and the selling of securities can take place on the stock exchange |
| Prices are determined and decided by the management of the company | Prices are determined by demand and supply for the securities |
| There is no fixed geographical location. | It is located at specified places |
further
(new issues of securities by existing companies to investors).
directly
(or between investors. The company is not involved through an intermediary).
• (b) (i) Growth opportunities
Companies having good growth opportunities retain more money
out of their earnings so as to finance the required investment.
• $\displaystyle 28$
Dividend in growth companies is therefore, smaller than that in
the non growth companies.
• (ii) Cash flow position
Availability of enough cash in the company is necessary for
• declaration of dividend.
This is important because the payment of dividend involves an
outflow of cash.
• (iii) Stock market reaction
Stock prices react positively to the news of increase in dividend
• and share prices react negatively to decrease in dividend.
Thus, the possible impact of dividend policy on the equity share
price has to be considered.
• (iv) Access to capital market
Large and reputed companies depend less on retained
earnings to finance their growth as they have easy access to
• the capital market.
Such companies pay higher dividends than the smaller
companies which have relatively low access to the market.
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CBSE Class 12 Business Studies past-paper question from the 2025 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.