Chapter 4

Question 1

is made up of a combination of borrowing and the money invested by its owners

Answer 1

capital of a company

Question 2

the long term borrowing, or debt, of a company is usually referred to as

Answer 2

bonds

Question 3

are the equity capital of a company, hence the reason they are referred to as equities

Answer 3

shares

Question 4

shares may comprise

Answer 4

ordinary shares
preference shares

Question 5

shares can be issued in either

Answer 5

registered
bearer form

Question 6

holding shares in this involves the investor having their name recorded on the share register and sometimes being issued with a share certificate to reflect the persons ownership

Answer 6

registered form

Question 7

the alternative to holding shares in registered form is to hold

Answer 7

bearer shares

Question 8

equity capital may be known as

Answer 8

ordinary shares
ordinary stock
common stock

Question 9

shareholders share in the profits of the company by receiving

Answer 9

dividends

Question 10

are hybrid security with elements of both debt and equity

Answer 10

preference shares

Question 11

have legal priority over ordinary shares in respect of earnings and in the event of bankruptcy, in respect of assets

Answer 11

preference shares

Question 12

also tends to have a credit ratings and ranks above equities in the capital structure

Answer 12

preferred stock

Question 13

preference shares are

Answer 13

non-voting
pay a fixed dividend each year
rank ahead of ordinary shares

Question 14

preference shares may be

Answer 14

cumulative
non-cumulative
participating
convertible
redeemable

Question 15

carry an option to convert into the ordinary shares of the company at set intervals and on preset terms

Answer 15

convertible preference shares

Question 16

it has a date at which they may be redeemed

Answer 16

redeemable shares

Question 17

the benefits of owning shares

Answer 17

dividends
capital gains
pre-emptive rights:right to subscribe for new shares
right to vote

Question 18

is the return that an investor gets for providing the risk capital for a business

Answer 18

dividend

Question 19

companies pay dividends out of their profits and these are

Answer 19

post-tax profits

Question 20

can be made on shares if their prices increase over time

Answer 20

capital gains

Question 21

is one method by which a company can raise additional capital, complying with pre-emptive rights

Answer 21

rights issue

Question 22

the votes are cast in one of two ways

Answer 22

the individual shareholder can attend the company meeting and vote
voting by proxy

Question 23

the individual shareholder can appoint someone else to vote on his behalf

Answer 23

voting by proxy

Question 24

Risk of owning shares

Answer 24

price risk and market risk
liquidity risk
issuer risk
foreign exchange risk

Question 25

is the risk that share prices in general might fall

Answer 25

price risk

Question 26

is the risk that shares may be difficult to sell at a reasonable price

Answer 26

liquidity risk

Question 27

this is the risk that the issuer collapses and the ordinary shares become worthless

Answer 27

issuer risk

Question 28

this is the risk that currency price movements will have a negative effect on the value of an investment

Answer 28

Foreign exchange risk

Question 29

the 3 corporate actions

Answer 29

mandatory corporate action mandatory corporate action with options voluntary corporate action

Question 30

is one mandated by the company, not requiring any intervention from the shareholders or bondholders

Answer 30

mandatory corporate action

Question 31

is an action that has some sort of default option that will occur if the shareholder does not intervene

Answer 31

mandatory corporate action with options

Question 32

is an action that requires the shareholder to make a decision

Answer 32

voluntary corporate action

Question 33

give examples in each corporate action

Answer 33

payment of a dividend rights issue takeover bid

Question 34

types of corporate action

Answer 34

securities ratios rights issues open offers bonus issues stock splits and reverse stock splits dividends takeovers and mergers

Question 35

can be defines as an offer of new shares to existing shareholders, pro rata to their initial holdings,

Answer 35

right issue

Question 36

is made to existing shareholders and gives the holders the opportunity to subscribe for additional shares in the company of for other securities

Answer 36

open offer

Question 37

bonus issue is also known as

Answer 37

scrip or capitalization issue

Question 38

is a corporate action when the company gives existing shareholders extra shares without them having to subscribe any further funds

Answer 38

bonus issue

Question 39

is the opposite of a split:shares are combined or consolidated

Answer 39

reverse split or consolidation

Question 40

are an example of a mandatory corporate action and represent the part of a compqnys profit that is passed to its shareholders

Answer 40

dividends

Question 41

takeover may be

Answer 41

friendly or hostile

Question 42

is a similar transaction when the two companies are of similar size and agree to merge their interest

Answer 42

merger

Question 43

must hold annual general meetings at which shareholders are given the opportunity to question the directors about the company strategy and operations

Answer 43

public companies

Question 44

when a company decides to seek a listings for its shares, the process is described in a number of ways

Answer 44

becoming listed or quoted floating on the stock market going public making an initial public offering

Question 45

refers to the marketing of new shares in a company to investors for the first time

Answer 45

primary market

Question 46

once they have acquired shares, the investors may at some point wish to dispose of some os all their shares and will generally do this through a stock exchange

Answer 46

sexondary market

Question 47

exist to raise capital and enable surplus funds to be matched with investment opportunities

Answer 47

primary markets

Question 48

allow the primary market to function efficiently by facilitating two way trade in issued securities

Answer 48

secondary markets

Question 49

is an organized marketplace for issuing and trading securities by members of that exchange

Answer 49

stock exchange

Question 50

originally designed to enable US investors to hold overseas shares without the high dealing costs and settlement delays associated with overseas ewuity transactions

Answer 50

american depositary receipts ADR

Question 51

is a dollar denominated and issued in bearer form, with a depositary bank as the registered shareholder

Answer 51

ADR

Question 52

makes arrangements for issues such as the payment of dividends, also denominated in US dollars and voting via a proxy at shareholder meetings

Answer 52

depositary bank

Question 53

depository receipts

Answer 53

ADR Indian depository receipts Philippine depository receipts

Question 54

is an organized marketplace for the issuing and trading of securities by members of that exchange

Answer 54

stock exchange

Question 55

trading categorized as

Answer 55

quote-driven order driven

Question 56

employ market makers to provide continuous two way ot bid anf offer prices during the trading day

Answer 56

quote driven

Question 57

example of quote driveb

Answer 57

NASDAQ

Question 58

is one that employs either in electronic order book

Answer 58

order driven

Question 59

useful tool for investors, as they provide a realistic benchmark against which the performance of a portfolio can be judged

Answer 59

stock market indices

Question 60

stock market indices have four uses

Answer 60

to act as a market barometer to assist in performance measurement to act as the basis for index tracker funds to support portfolio management research

Question 61

is the final phase of the trading process

Answer 61

settlement

Question 62

are used to achieve this by a process known as book entry transfer which involves charging electronic records of ownership rather than issuing new share certificates

Answer 62

electronic system

Question 63

if dividends cannot paid in a particular year, perhaps because the company has insufficient profits, this share would get no dividend

Answer 63

ordinary preference share

Question 64

However, if this is the share then the dividend entitlement accumulates

Answer 64

cumulative preference shares

Question 65

is this is the share the dividend from the first year would be lost

Answer 65

non cumulative

Question 66

the first dividend being declared by the directors and paid approximately halfway through the year

Answer 66

interim dividend

Question 67

the second dividend is paid after approval by shareholders at the companys annual general meeting

Answer 67

final dividend for the year

Question 68

shares are bought and sold with the right to receive the next declared dividend uo to the date when the declaration is actually made

Answer 68

cum dividend

Question 69

if the shares are purchase in this dividend, the purchase will receive the declared dividend

Answer 69

cum dividend

Question 70

for the period between declaration and the dividend payment date, the shares go

Answer 70

ex dividend

Question 71

buying of shares when they are this dividend are not entitled to the declared dividend

Answer 71

ex dividend