Freddy has received a gift from his family on his eighteenth birthday of 10,000 shares in Ace Pharmaceuticals Ltd. 5,000 of these shares are ordinary shares and the other 5,000 shares are 10% preference shares.

This is Freddy's first time that he owns shares in a company and he wants some advice about the two types of shares in Ace Pharmaceuticals Ltd.

Required:

Explain to Freddy:

1. What are Ordinary Shares and Preferences Shares? (3 marks)
2. The payment of dividends to a shareholder who owns Ordinary Shares and Preference Share?