Chapter 4 - Equities

Question 1

Definition and purpose of equities

Answer 1

-Equities represent ownership in a company

-Companies issue shares to raise capital for growth and operations

Question 2

What is an IPO (Initial Public Offering)

Answer 2

-The first sale of a company’s shares to the public

Question 3

What are dividends?

Answer 3

-Portion of profits distributed to shareholders

Question 4

What are capital gains?

Answer 4

Profit from selling shares at a higher price than purchased.

Question 5

How calculate Dividend Yield?

Answer 5

Dividend Yield = (Annual Dividends / Share Price) x 100.

Question 6

Shareholder rights

Answer 6

-Voting rights at company meetings

-Entitlement to dividends

-Rights to residual assets upon liquidation.

Question 7

Risks of owning shares

Answer 7

-Potential for no dividends if the company isn’t profitable

-Risk of losing investment if the company goes bankrupt.

-Market volatility can lead to capital losses

-Shareholders are last in line to be paid if company goes bankrupt.