WorksheetsIFE S8 Equity Markets
Total questions: 10
Worksheet time: 5mins
Which one of the following is false?
Shareholders vote at meetings to determine important matters such as the composition of the board of directors.
Shareholders share in both the rising prosperity and the lack of success of a company.
Shareholders are promised a minimum annual return as a dividend to encourage them to maintain their investment in the company.
Shares represent the equity share capital of a company and are a source of long-term finance.
Which one of the following is NOT an advantage for a firm that raises capital by selling preference shares?
Preference shares provide an additional source of finance, but do not dilute the influence the ordinary shareholders.
The limits placed on the returns to preference shareholders mean that usually ordinary shareholders receive all the extraordinary profits when the firm is doing well.
Preference dividends are tax deductible.
Preference dividends do not have to be paid every year.
Which one of the following statements is false?
A cumulative preference share is one where the dividends due are only paid at the end of the share's life.
A redeemable preference share has a finite life.
A participating preference share is one where the dividend may be increased if the company has high profits.
A convertible preference share is one which can be converted into ordinary shares at specific dates and on pre-set terms.
Which one of the following is false?
Top tier companies trading on the London Stock Exchange are in the Main Market.
Companies wishing to trade on the London Stock Exchange have to conform to a number of requirements.
The London Stock Exchange’s Main Market is also known as AIM.
The London Stock Exchange primary market allows companies to sell and trade shares and other securities.
Which one of the following statements is true in a quote-driven stock market trading system?
Market makers post bid and offer prices for shares into a computer system.
The stock exchange quotes buy and sell prices in shares on the exchange; brokers then complete deals on behalf of clients by buying or selling from the exchange.
Brokers quote bid and offer prices in shares; investors then purchase shares after considering all the brokers' prices.
Buy and sell orders are entered on a central computer system and investors wishing to sell are matched with investors wishing to buy at their chosen prices.
A Short sale is best described as…
selling shares that were bought a short time before and making a profit on them.
selling shares at a lower price than the market price.
buying shares before selling them in the hope that the share price will rise.
selling borrowed shares before buying them back in the hope that the share price will fall.
Going public is best described as…
announcing to the public a company's intention to sell its shares.
making a company's financial statements available to the public.
obtaining a listing on a regulated stock exchange and selling shares to the public.
a private limited company arranging to sell shares to the investors.
Which one of the following statements is incorrect?
Companies buy back their own shares primarily to prevent them being sold to foreign companies.
In the UK, if existing shareholders do not exercise their pre-emption rights, the company will sell the shares on their behalf and send them the proceeds.
Warrants give the right to buy a specified number of shares at a specified price and time.
Placings sell newly issued shares to a small group of external investors.
An accurate description of pre-emption rights is…
to prevent existing shareholders from purchasing shares which are newly issued.
to require that existing shareholders buy a percentage in proportion to their existing shareholding of any new issue of shares.
to offer existing shareholders a substantial discount on the price of a new issue of shares.
to insist that companies issuing new shares offer them to existing shareholders first.
Which one of the following is NOT a disadvantage of raising capital by selling ordinary shares?
Collateral must be offered to potential shareholders.
The current shareholders may face a loss of control over the direction of firm.
Dividends cannot be used to reduce taxable profit.
The transaction costs are usually higher than raising other forms of finance.
