Question 1

A preference share issue offers all of the following advantages to a company except:

Accepted Answer

A)  a flexible dividend policy. 
B)  fixed interest borrowings that can count as equity. 
C)  extension of the equity base of the company. 
D)  an indefinite maturity. 
A)  a flexible dividend policy. 
B)  fixed interest borrowings that can count as equity. 
C)  extension of the equity base of the company. 
D)  an indefinite maturity.

Question 2

Which one of the following conditions for an equity warrant that is generally attached to a bond issue is NOT correct?

Accepted Answer

A)  The holder has a conditional option to convert into ordinary shares of a company. 
B)  A warrant holder receives dividend payments over the life of the warrant. 
C)  Warrants may be detachable and traded separately from the bond issue. 
D)  The cost of borrowing through a bond issue may be lower with a warrant attached. 
A)  The holder has a conditional option to convert into ordinary shares of a company. 
B)  A warrant holder receives dividend payments over the life of the warrant. 
C)  Warrants may be detachable and traded separately from the bond issue. 
D)  The cost of borrowing through a bond issue may be lower with a warrant attached.

Question 3

The investment decision for a corporation involves the types of securities it is going to issue or invest in.

Accepted Answer

A) True 
 B)False

Question 4

An increase in a firm's level of debt will:

Accepted Answer

A)  reduce the business risk of the firm. 
B)  increase the variability in earnings per share. 
C)  lower the expected return on shareholders' funds. 
D)  increase the return to the debt holders. 
A)  reduce the business risk of the firm. 
B)  increase the variability in earnings per share. 
C)  lower the expected return on shareholders' funds. 
D)  increase the return to the debt holders.

Question 5

Compared with straight debt,convertible notes may offer a company:

Accepted Answer

A)  lower borrowing costs. 
B)  higher borrowing costs. 
C)  a chance to issue more shares at maturity. 
D)  the opportunity to reduce debt. 
A)  lower borrowing costs. 
B)  higher borrowing costs. 
C)  a chance to issue more shares at maturity. 
D)  the opportunity to reduce debt.

Question 6

Which financial instrument gives the holder an option to purchase a specified number of shares at a predetermined price over a given period?

Accepted Answer

A)  An equity warrant 
B)  A put option 
C)  An ordinary preference share 
D)  A debenture 
A)  An equity warrant 
B)  A put option 
C)  An ordinary preference share 
D)  A debenture

Question 7

Which of the following statements best describes the role or function of the promoter of a flotation?

Accepted Answer

A)  The manager of the sub-underwriting panel or group 
B)  The broker responsible for the initial sale of shares to investors 
C)  The party seeking the flotation of the company 
D)  The agency responsible for marketing the issue to the public 
A)  The manager of the sub-underwriting panel or group 
B)  The broker responsible for the initial sale of shares to investors 
C)  The party seeking the flotation of the company 
D)  The agency responsible for marketing the issue to the public

Question 8

A pro-rata share rights offer of 1: 5 gives existing shareholders:

Accepted Answer

A)  the right to purchase one new share for every five shares held. 
B)  the right to purchase five new shares for every one share held. 
C)  the right to purchase one share for every 1/5 shares held. 
D)  the right to purchase 10 shares for every five shares held. 
A)  the right to purchase one new share for every five shares held. 
B)  the right to purchase five new shares for every one share held. 
C)  the right to purchase one share for every 1/5 shares held. 
D)  the right to purchase 10 shares for every five shares held.

Question 9

Companies can raise equity capital through:

Accepted Answer

A)  the money markets. 
B)  the inter-bank market. 
C)  retained earnings and the share market. 
D)  a major bank. 
A)  the money markets. 
B)  the inter-bank market. 
C)  retained earnings and the share market. 
D)  a major bank.

Question 10

Which of the following statements is correct for an investment proposal with a positive NPV?

Accepted Answer

A)  The discount rate exceeds the required rate of return. 
B)  The IRR is greater than the required rate of return. 
C)  Accepting the investment proposal has an uncertain effect on shareholders. 
D)  The present value of the cash flow equals the cost of the investment. 
A)  The discount rate exceeds the required rate of return. 
B)  The IRR is greater than the required rate of return. 
C)  Accepting the investment proposal has an uncertain effect on shareholders. 
D)  The present value of the cash flow equals the cost of the investment.

Question 11

Which of the following statements about a no liability company is incorrect?

Accepted Answer

A)  A no liability company will issue shares on a partly paid basis. 
B)  In Australia only mining companies can list as a no liability company. 
C)  A no liability company may also offer shareholders an option to sell shares back to the company if the company exploration is not successful. 
D)  If a no liability gold-mining company discovers gold then for the product phase the company may issue a further call on the partly paid shares. 
A)  A no liability company will issue shares on a partly paid basis. 
B)  In Australia only mining companies can list as a no liability company. 
C)  A no liability company may also offer shareholders an option to sell shares back to the company if the company exploration is not successful. 
D)  If a no liability gold-mining company discovers gold then for the product phase the company may issue a further call on the partly paid shares.

Question 12

The internal relationship between shareholders,the board of directors and the managers of a company is called:

Accepted Answer

A)  agency theory. 
B)  corporate governance. 
C)  commercial theory. 
D)  organisational governance. 
A)  agency theory. 
B)  corporate governance. 
C)  commercial theory. 
D)  organisational governance.

Question 13

When a company decides to issue an unsecured note to pay for a new machine,it has made a/an:

Accepted Answer

A)  capital market decision. 
B)  money market decision. 
C)  financing decision. 
D)  investment decision. 
A)  capital market decision. 
B)  money market decision. 
C)  financing decision. 
D)  investment decision.

Question 14

Financial risk refers to risks arising from the different types of debt securities issued by a company.

Accepted Answer

A) True 
 B)False

Question 15

When a company's project results in a return and profits which exceed the cost of its debt borrowing:

Accepted Answer

A)  both the debt holders and shareholders can share in the profits. 
B)  only the shareholders may share in the profits. 
C)  the interest payments to the debt holders may increase. 
D)  its cost of capital increases. 
A)  both the debt holders and shareholders can share in the profits. 
B)  only the shareholders may share in the profits. 
C)  the interest payments to the debt holders may increase. 
D)  its cost of capital increases.

Question 16

Which of the following is NOT a feature of convertible notes?

Accepted Answer

A)  Convertible notes are usually issued at a price close to the market price of the share. 
B)  The expectation of the note holder is that the share price will increase over the term of the note. 
C)  Convertible notes offer a higher interest rate than straight debt instruments. 
D)  A convertible note may be made by direct placement to shareholders. 
A)  Convertible notes are usually issued at a price close to the market price of the share. 
B)  The expectation of the note holder is that the share price will increase over the term of the note. 
C)  Convertible notes offer a higher interest rate than straight debt instruments. 
D)  A convertible note may be made by direct placement to shareholders.

Question 17

Which of the following is NOT an advantage for a company that sells a company-issued option with a rights issue?

Accepted Answer

A)  It may add to the marketability of the associated rights issue. 
B)  It reduces the necessity for the company to increase dividend payments immediately. 
C)  If the holder of the option exercises the right to buy the shares offered then the company raises additional equity funds. 
D)  There is no certainty that the future funds from the exercise of the option will eventuate. 
A)  It may add to the marketability of the associated rights issue. 
B)  It reduces the necessity for the company to increase dividend payments immediately. 
C)  If the holder of the option exercises the right to buy the shares offered then the company raises additional equity funds. 
D)  There is no certainty that the future funds from the exercise of the option will eventuate.

Question 18

Financing for high-risk companies is often in the form of:

Accepted Answer

A)  limited liability shares. 
B)  no-liability shares. 
C)  limited instalment receipts. 
D)  contributing shares. 
A)  limited liability shares. 
B)  no-liability shares. 
C)  limited instalment receipts. 
D)  contributing shares.

Question 19

Restrictions placed on borrowers by lenders in the loan agreement are called loan:

Accepted Answer

A)  covenants. 
B)  limits. 
C)  arrangements. 
D)  contracts. 
A)  covenants. 
B)  limits. 
C)  arrangements. 
D)  contracts.

Question 20

Compared with ordinary shares,preference shares usually:

Accepted Answer

A)  rank ahead of a company's creditors in the case of a wind-up. 
B)  have dividends set at issue. 
C)  are viewed as debt financing. 
D)  pay their dividends after ordinary shares. 
A)  rank ahead of a company's creditors in the case of a wind-up. 
B)  have dividends set at issue. 
C)  are viewed as debt financing. 
D)  pay their dividends after ordinary shares.

Exam 5: Corporations Issuing Equity in the Share Market

A preference share issue offers all of the following advantages to a company except:

Which one of the following conditions for an equity warrant that is generally attached to a bond issue is NOT correct?

The investment decision for a corporation involves the types of securities it is going to issue or invest in.

An increase in a firm's level of debt will:

Compared with straight debt,convertible notes may offer a company:

Which financial instrument gives the holder an option to purchase a specified number of shares at a predetermined price over a given period?

Which of the following statements best describes the role or function of the promoter of a flotation?

A pro-rata share rights offer of 1: 5 gives existing shareholders:

Companies can raise equity capital through:

Which of the following statements is correct for an investment proposal with a positive NPV?

Which of the following statements about a no liability company is incorrect?

The internal relationship between shareholders,the board of directors and the managers of a company is called:

When a company decides to issue an unsecured note to pay for a new machine,it has made a/an:

Financial risk refers to risks arising from the different types of debt securities issued by a company.

When a company's project results in a return and profits which exceed the cost of its debt borrowing:

Which of the following is NOT a feature of convertible notes?

Which of the following is NOT an advantage for a company that sells a company-issued option with a rights issue?

Financing for high-risk companies is often in the form of:

Restrictions placed on borrowers by lenders in the loan agreement are called loan:

Compared with ordinary shares,preference shares usually:

A Modern Financial System: An Overview

Commercial Banks

Non-Bank Financial Institutions

The Share Market and the Corporation

Investors 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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