Question 1

A convertible note is a/an:

Accepted Answer

A)  equity instrument that converts into debt at maturity. 
B)  equity instrument that converts into a specified number of shares at maturity. 
C)  debt instrument that the holder has the option to convert into an initially specified number of shares. 
D)  warrant that the holder has the option to convert into an initially agreed-upon number of shares. 
A)  equity instrument that converts into debt at maturity. 
B)  equity instrument that converts into a specified number of shares at maturity. 
C)  debt instrument that the holder has the option to convert into an initially specified number of shares. 
D)  warrant that the holder has the option to convert into an initially agreed-upon number of shares.

Question 2

If the calculated IRR on an investment proposal is greater than the required rate of return,the company should proceed with the project.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following factors of company-issued equity warrants is NOT correct?

Accepted Answer

A)  They are often detachable. 
B)  They add to the marketability of an issue. 
C)  They may offer an investor an opportunity of buying stock at a discount. 
D)  Their exercise period is usually shorter than three months. 
A)  They are often detachable. 
B)  They add to the marketability of an issue. 
C)  They may offer an investor an opportunity of buying stock at a discount. 
D)  Their exercise period is usually shorter than three months.

Question 4

The claims of the equity holders on the assets of the firm have priority over those of:

Accepted Answer

A)  the debt holders. 
B)  the preferred shareholders. 
C)  the unsecured debt holders. 
D)  no other holder. 
A)  the debt holders. 
B)  the preferred shareholders. 
C)  the unsecured debt holders. 
D)  no other holder.

Question 5

If,for an IPO,market prices have fallen,then underwriters with an out-clause that gives a level of a specified price index that the index cannot fall below,then:

Accepted Answer

A)  the underwriters have the right to charge the company more for raising the funds. 
B)  the underwriters need to only purchase a specified number of shares and not the total unsold. 
C)  the underwriters may be released from their obligations. 
D)  the underwriters may offer the shares at a lower price. 
A)  the underwriters have the right to charge the company more for raising the funds. 
B)  the underwriters need to only purchase a specified number of shares and not the total unsold. 
C)  the underwriters may be released from their obligations. 
D)  the underwriters may offer the shares at a lower price.

Question 6

When a company wants to increase the marketability of a rights issue,it may offer:

Accepted Answer

A)  preference shares attached. 
B)  options attached. 
C)  convertible notes attached. 
D)  dividends attached. 
A)  preference shares attached. 
B)  options attached. 
C)  convertible notes attached. 
D)  dividends attached.

Question 7

Problems associated with calculating an internal rate of return include:

Accepted Answer

A)  negative cash flows during the project's lifetime. 
B)  choosing one project from two or more projects. 
C)  timing of cash flows. 
D)  All of the given answers. 
A)  negative cash flows during the project's lifetime. 
B)  choosing one project from two or more projects. 
C)  timing of cash flows. 
D)  All of the given answers.

Question 8

Convertible preference shares are normally converted into:

Accepted Answer

A)  debentures. 
B)  bonds. 
C)  shares. 
D)  warrants. 
A)  debentures. 
B)  bonds. 
C)  shares. 
D)  warrants.

Question 9

Which of the following about equity warrants is NOT correct?

Accepted Answer

A)  If the warrant is non-detachable it can only be sold with the associated bond. 
B)  Equity warrants add to the marketability of a corporate bond issue. 
C)  Equity warrants give an investor the right to convert the warrant into shares at a specified price. 
D)  A warrant holder receives a dividend, unlike a rights holder. 
A)  If the warrant is non-detachable it can only be sold with the associated bond. 
B)  Equity warrants add to the marketability of a corporate bond issue. 
C)  Equity warrants give an investor the right to convert the warrant into shares at a specified price. 
D)  A warrant holder receives a dividend, unlike a rights holder.

Question 10

Who are sometimes referred to as the residual owners of the corporation?

Accepted Answer

A)  The secured creditors 
B)  The unsecured creditors 
C)  The common shareholders 
D)  The preferred shareholders 
A)  The secured creditors 
B)  The unsecured creditors 
C)  The common shareholders 
D)  The preferred shareholders

Question 11

Before making a rights issue,a company's management must consider several important variables.Which of the following is NOT one of these variables?

Accepted Answer

A)  The ability of the company to service the increased equity on issue 
B)  The costs of alternative funding sources 
C)  Whether there will be a sufficient take-up rate of the issue 
D)  The effect on the firm's profits 
A)  The ability of the company to service the increased equity on issue 
B)  The costs of alternative funding sources 
C)  Whether there will be a sufficient take-up rate of the issue 
D)  The effect on the firm's profits

Question 12

Which of the following criteria would be determinants of the appropriate ratio of debt to equity if a company should not take on more debt than can be serviced under conservative economic forecasts?
i.Maximisation of shareholder wealth
ii.Industry norms
iii.History of the ratio for the firm
iv.The stage of the current economic cycle
v.Limit imposed by lenders
vi.The company's capacity to service debt

Accepted Answer

A)  i, iii, v, vi 
B)  ii, iii, v, vi 
C)  ii, iii, iv, v 
D)  iii, iv, v, vi 
A)  i, iii, v, vi 
B)  ii, iii, v, vi 
C)  ii, iii, iv, v 
D)  iii, iv, v, vi

Question 13

Holders of equity capital:

Accepted Answer

A)  receive interest payments. 
B)  own the company. 
C)  have lent money to the company. 
D)  have a guaranteed right to income from the company. 
A)  receive interest payments. 
B)  own the company. 
C)  have lent money to the company. 
D)  have a guaranteed right to income from the company.

Question 14

A principal objective of a business organisation is the maximisation of its profits.

Accepted Answer

A) True 
 B)False

Question 15

A company may raise additional equity capital through:

Accepted Answer

A)  a rights issue. 
B)  a placement. 
C)  a dividend reinvestment scheme. 
D)  all of the given answers. 
A)  a rights issue. 
B)  a placement. 
C)  a dividend reinvestment scheme. 
D)  all of the given answers.

Question 16

Common shareholders are:

Accepted Answer

A)  guaranteed a periodic distribution of dividends 
B)  guaranteed a distribution in the wind-up of the company. 
C)  guaranteed both a periodic distribution of dividends and a distribution in the wind-up of the company. 
D)  not guaranteed a periodic distribution or a distribution in the wind-up of the company. 
A)  guaranteed a periodic distribution of dividends 
B)  guaranteed a distribution in the wind-up of the company. 
C)  guaranteed both a periodic distribution of dividends and a distribution in the wind-up of the company. 
D)  not guaranteed a periodic distribution or a distribution in the wind-up of the company.

Question 17

An advantage of a convertible security for a company is that it can generally be sold with interest rates _______ other non-convertible debt securities.

Accepted Answer

A)  higher than 
B)  equal to 
C)  lower than 
D)  unrelated to 
A)  higher than 
B)  equal to 
C)  lower than 
D)  unrelated to

Question 18

What is the function of a proxy statement for a shareholder?

Accepted Answer

A)  It gives them the right of a vote for each share they own. 
B)  It gives them the right to transfer their share to another party. 
C)  It gives them the entitlement to new shares when issued. 
D)  It gives them the right to sell their shares at a premium. 
A)  It gives them the right of a vote for each share they own. 
B)  It gives them the right to transfer their share to another party. 
C)  It gives them the entitlement to new shares when issued. 
D)  It gives them the right to sell their shares at a premium.

Question 19

Which of the following is NOT a similarity between a right and a warrant?

Accepted Answer

A)  They both provide the right, without the obligation, to purchase a specified number of shares at a predetermined price. 
B)  A right and a warrant both result in the company raising additional equity capital. 
C)  A right and a warrant can both be detached from the debt issue and traded separately. 
D)  A right and a warrant both have similar maturities. 
A)  They both provide the right, without the obligation, to purchase a specified number of shares at a predetermined price. 
B)  A right and a warrant both result in the company raising additional equity capital. 
C)  A right and a warrant can both be detached from the debt issue and traded separately. 
D)  A right and a warrant both have similar maturities.

Question 20

An investment decision differs from a financing decision in that:

Accepted Answer

A)  investment decisions relate to assets that the firm has invested in, while financing decisions relate to the firm's financial assets. 
B)  an investment decision first determines what assets the firm will invest in, while a financing decision considers if the existing investments should be refinanced. 
C)  a financing decision first determines what financial assets the firm will invest in, while an investment decision considers how the funds will be invested. 
D)  an investment decision first determines what assets the firm will invest in, while a financing decision considers how the investments under consideration are to be funded. 
A)  investment decisions relate to assets that the firm has invested in, while financing decisions relate to the firm's financial assets. 
B)  an investment decision first determines what assets the firm will invest in, while a financing decision considers if the existing investments should be refinanced. 
C)  a financing decision first determines what financial assets the firm will invest in, while an investment decision considers how the funds will be invested. 
D)  an investment decision first determines what assets the firm will invest in, while a financing decision considers how the investments under consideration are to be funded.

A convertible note is a/an:

If the calculated IRR on an investment proposal is greater than the required rate of return,the company should proceed with the project.

Which of the following factors of company-issued equity warrants is NOT correct?

The claims of the equity holders on the assets of the firm have priority over those of:

If,for an IPO,market prices have fallen,then underwriters with an out-clause that gives a level of a specified price index that the index cannot fall below,then:

When a company wants to increase the marketability of a rights issue,it may offer:

Problems associated with calculating an internal rate of return include:

Convertible preference shares are normally converted into:

Which of the following about equity warrants is NOT correct?

Who are sometimes referred to as the residual owners of the corporation?

Before making a rights issue,a company's management must consider several important variables.Which of the following is NOT one of these variables?

Holders of equity capital:

A principal objective of a business organisation is the maximisation of its profits.

A company may raise additional equity capital through:

Common shareholders are:

An advantage of a convertible security for a company is that it can generally be sold with interest rates _______ other non-convertible debt securities.

What is the function of a proxy statement for a shareholder?

Which of the following is NOT a similarity between a right and a warrant?

An investment decision differs from a financing decision in that:

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

Filters

Exam 5: Corporations Issuing Equity in the Share Market

A convertible note is a/an:

If the calculated IRR on an investment proposal is greater than the required rate of return,the company should proceed with the project.

Which of the following factors of company-issued equity warrants is NOT correct?

The claims of the equity holders on the assets of the firm have priority over those of:

If,for an IPO,market prices have fallen,then underwriters with an out-clause that gives a level of a specified price index that the index cannot fall below,then:

When a company wants to increase the marketability of a rights issue,it may offer:

Problems associated with calculating an internal rate of return include:

Convertible preference shares are normally converted into:

Which of the following about equity warrants is NOT correct?

Who are sometimes referred to as the residual owners of the corporation?

Before making a rights issue,a company's management must consider several important variables.Which of the following is NOT one of these variables?

Holders of equity capital:

A principal objective of a business organisation is the maximisation of its profits.

A company may raise additional equity capital through:

Common shareholders are:

An advantage of a convertible security for a company is that it can generally be sold with interest rates _______ other non-convertible debt securities.

What is the function of a proxy statement for a shareholder?

Which of the following is NOT a similarity between a right and a warrant?

An investment decision differs from a financing decision in that:

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

Filters