Question 1

Share market participants can regard a rights issue favourably because:

Accepted Answer

A)  a rights issue does not affect the capital structure of a company. 
B)  a rights issue increases the equity/debt ratio, and so reduces financial risk. 
C)  they can participate in the rights issue without having to pay the subscription price. 
D)  rights issues increase the value of shares in an investor's portfolio. 
A)  a rights issue does not affect the capital structure of a company. 
B)  a rights issue increases the equity/debt ratio, and so reduces financial risk. 
C)  they can participate in the rights issue without having to pay the subscription price. 
D)  rights issues increase the value of shares in an investor's portfolio.

Question 2

The _______ ratio is an indicator of the share market's evaluation of a company.

Accepted Answer

A)  debt/equity 
B)  price/earnings 
C)  debt to gross cash flow 
D)  shareholders' interest 
A)  debt/equity 
B)  price/earnings 
C)  debt to gross cash flow 
D)  shareholders' interest

Question 3

Historically,Australian banks have had low EPS ratios compared with the retail sector because of the amount of lending they do.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following is NOT an example of unsystematic risk for a company?

Accepted Answer

A)  The company announces a merger with a competitor. 
B)  The chief financial officer resigns. 
C)  The company loses competitiveness relative to other companies. 
D)  Changes occur in the level of company tax rates. 
A)  The company announces a merger with a competitor. 
B)  The chief financial officer resigns. 
C)  The company loses competitiveness relative to other companies. 
D)  Changes occur in the level of company tax rates.

Question 5

Which of the following statement about bonus shares is NOT correct?

Accepted Answer

A)  Bonus shares are generally issued at no cost to the shareholders. 
B)  If a company offers a 1 for 4 bonus issue this means for every 1 share a shareholder owns they get four extra shares. 
C)  When shares go ex-bonus there should be a downward adjustment in the share price. 
D)  If a company declares a bonus share issue this can be viewed by the market as a positive signal about the company's future profitability. 
A)  Bonus shares are generally issued at no cost to the shareholders. 
B)  If a company offers a 1 for 4 bonus issue this means for every 1 share a shareholder owns they get four extra shares. 
C)  When shares go ex-bonus there should be a downward adjustment in the share price. 
D)  If a company declares a bonus share issue this can be viewed by the market as a positive signal about the company's future profitability.

Question 6

A share that has a beta of 0.5 is half as risky as the average share listed on the share market.

Accepted Answer

A) True 
 B)False

Question 7

When a share price of a company has increased hugely compared to the prices of most other shares on the exchange and its liquidity has decreased,the directors may decide to:

Accepted Answer

A)  split the number of shares on issue. 
B)  have a bonus issue. 
C)  declare an increased dividend. 
D)  lower the dividend. 
A)  split the number of shares on issue. 
B)  have a bonus issue. 
C)  declare an increased dividend. 
D)  lower the dividend.

Question 8

Which of the following is an example of systematic risk exposures for a company?

Accepted Answer

A)  Resignation of chief executive 
B)  Change in future performance forecasts 
C)  Rumour of financial difficulty in the company 
D)  Introduction of new company legislation 
A)  Resignation of chief executive 
B)  Change in future performance forecasts 
C)  Rumour of financial difficulty in the company 
D)  Introduction of new company legislation

Question 9

When a share investor puts an order to buy shares through their stock broker via their internet share account,this is called:

Accepted Answer

A)  indirect investment. 
B)  direct investment. 
C)  index investment. 
D)  passive investment. 
A)  indirect investment. 
B)  direct investment. 
C)  index investment. 
D)  passive investment.

Question 10

Which of the following statements is NOT correct?

Accepted Answer

A)  In Australia taxation of individuals is based on a progressive tax system. 
B)  The dividend imputation system effectively removes the double taxation of dividends in Australia. 
C)  In relation to dividend imputation, a shareholder whose marginal tax is lower than the company tax rate will pay their marginal tax on the dividend received. 
D)  In Australia dividends on which the company has already paid company tax are called franked dividends. 
A)  In Australia taxation of individuals is based on a progressive tax system. 
B)  The dividend imputation system effectively removes the double taxation of dividends in Australia. 
C)  In relation to dividend imputation, a shareholder whose marginal tax is lower than the company tax rate will pay their marginal tax on the dividend received. 
D)  In Australia dividends on which the company has already paid company tax are called franked dividends.

Question 11

On the day that a share goes ex-dividend,the price should theoretically:

Accepted Answer

A)  increase by the extent of the dividend. 
B)  decrease by the extent of the dividend. 
C)  decrease by a small fraction of the dividend. 
D)  remain constant. 
A)  increase by the extent of the dividend. 
B)  decrease by the extent of the dividend. 
C)  decrease by a small fraction of the dividend. 
D)  remain constant.

Question 12

The financial ratio that indicates the number of years required for a company to repay its total debt is:

Accepted Answer

A)  debt to equity. 
B)  debt to depreciation. 
C)  debt to gross cash flow. 
D)  debt to net cash flow. 
A)  debt to equity. 
B)  debt to depreciation. 
C)  debt to gross cash flow. 
D)  debt to net cash flow.

Question 13

Which financial ratio measures a company's ability to service its interest commitments?

Accepted Answer

A)  Debt 
B)  Equity to debt 
C)  Profitability 
D)  Interest cover 
A)  Debt 
B)  Equity to debt 
C)  Profitability 
D)  Interest cover

Question 14

If a share currently sells for $20 and has annual earnings per share of 8.0,the price/earnings ratio is:

Accepted Answer

A)  0.4 
B)  2.5 
C)  4.0 
D)  160 
A)  0.4 
B)  2.5 
C)  4.0 
D)  160

Question 15

An investor holds 100 shares of a company that is about to make a bonus issue of five shares for every two held.If the shares are currently trading for $2.50,what will be the value of the holding after the bonus issue?

Accepted Answer

A)  $200 
B)  $250 
C)  $400 
D)  $500 
A)  $200 
B)  $250 
C)  $400 
D)  $500

Question 16

Explain how an index fund might benefit an investor.

Accepted Answer

If an investor wishes to build a portfol

Question 17

The greater the proportion of debt financing compared with equity financing for a company the:

Accepted Answer

A)  lower the future earnings prospects for the company. 
B)  greater the ability of the company to meet its interest payments. 
C)  greater the degree of financial risk for the company. 
D)  lower the expected earnings per share. 
A)  lower the future earnings prospects for the company. 
B)  greater the ability of the company to meet its interest payments. 
C)  greater the degree of financial risk for the company. 
D)  lower the expected earnings per share.

Question 18

What is a stock-market index?
 Discuss three main types.

Accepted Answer

A stock-market index is a measure of the

Question 19

The majority of companies pay dividends twice a year to their:

Accepted Answer

A)  bond holders. 
B)  secured bond holders. 
C)  shareholders. 
D)  board of directors. 
A)  bond holders. 
B)  secured bond holders. 
C)  shareholders. 
D)  board of directors.

Question 20

Which of the following about share market indices is NOT correct?

Accepted Answer

A)  The FTSE 100 index tracks 100 shares in the UK. 
B)  The Nikkei 225 index tracks 225 shares in Japan. 
C)  The Hang Seng index tracks shares in Hong Kong. 
D)  The Dow Jones tracks 50 shares in the USA. 
A)  The FTSE 100 index tracks 100 shares in the UK. 
B)  The Nikkei 225 index tracks 225 shares in Japan. 
C)  The Hang Seng index tracks shares in Hong Kong. 
D)  The Dow Jones tracks 50 shares in the USA.

Exam 6: Investors in the Share Market

Share market participants can regard a rights issue favourably because:

The _______ ratio is an indicator of the share market's evaluation of a company.

Historically,Australian banks have had low EPS ratios compared with the retail sector because of the amount of lending they do.

Which of the following is NOT an example of unsystematic risk for a company?

Which of the following statement about bonus shares is NOT correct?

A share that has a beta of 0.5 is half as risky as the average share listed on the share market.

When a share price of a company has increased hugely compared to the prices of most other shares on the exchange and its liquidity has decreased,the directors may decide to:

Which of the following is an example of systematic risk exposures for a company?

When a share investor puts an order to buy shares through their stock broker via their internet share account,this is called:

Which of the following statements is NOT correct?

On the day that a share goes ex-dividend,the price should theoretically:

The financial ratio that indicates the number of years required for a company to repay its total debt is:

Which financial ratio measures a company's ability to service its interest commitments?

If a share currently sells for $20 and has annual earnings per share of 8.0,the price/earnings ratio is:

An investor holds 100 shares of a company that is about to make a bonus issue of five shares for every two held.If the shares are currently trading for $2.50,what will be the value of the holding after the bonus issue?

Explain how an index fund might benefit an investor.

The greater the proportion of debt financing compared with equity financing for a company the:

What is a stock-market index? Discuss three main types.

The majority of companies pay dividends twice a year to their:

Which of the following about share market indices is NOT correct?

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Corporations Issuing Equity in the Share Market

Forecasting Share Price Movements

Mathematics of Finance: An Introduction to Basic Concepts and Calculations

Short-Term Debt

Medium-To-Long-Term Debt

International Debt Markets

Government Debt, monetary Policy and the Payments System

An Introduction to Interest Rate Determination and Forecasting

Interest Rate Risk

Foreign Exchange: The Structure and Operation of the Fx Market

Foreign Exchange: Factors That Influence the Exchange Rate

Foreign Exchange: Risk Identification and Management

An Introduction to Risk Management and Derivatives

Future Contracts and Forward Rate Agreements

Options

Interest Rate Swaps, Cross-Currency Swaps and Credit Default

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