Mock Flashcards
1
Q
When distribution of the subsidiary shares to existing shareholders, this is known as:
A. Split
B. Spin-off
C. Crave-out
D. Bonus issue
A
B. Spin-off
2
Q
The fund that stands ready to sell new units
A. Open ended
B. Closed ended
C. ETF
D. None of the above
A
A. Open ended
3
Q
The price of a closed end fund is __________ NAV:
A. Traded at a premium to
B. Equal to
C. Most of the time less than
D. Always less than
A
C. Most of the time less than
4
Q
For the Murabaha contract to be Shariah compliant the seller must:
a. Disclose the original price
b. Disclose any expenses
c. Disclose profit
d. Acquire the commodity
A. a, b, c, d
B. a, b, c
C. a, b, d
D. a, c, d
A
B. a, b, c
5
Q
A company can acquire another through:
a. Acquisition of assets b. Acquisition of stocks
A. a only
B. b only
C. a and b
D. None
A
C. a and b
6
Q
Exchange traded funds have:
a. Lower expenses
b. Actively managed
c. Pricing at the end of the day
d. Valuation by measuring NAV
A. a, b, c, d
B. a, d
C. b, c, d
D. a only
A
D. a only
7
Q
To establish an internal control system, all of the following is true except:
A. Segregation of duties
B. Check and balance
C. Authorization and approval should be given to the same person to avoid delay
D. Accounting control
A
C. Authorization and approval should be given to the same person to avoid delay
8
Q
If merger and acquisition is well prepared, it may be value adding, which is more accurate with regard to extra benefits:
A. Large companies will get more staff
B. Revenue enhancement and cost savings
C. The merging company will get more market share
D. The merging company will have manipulation power
A
B. Revenue enhancement and cost savings
9
Q
Which of the following may lead to achieve financial benefits if company’s staff are committed to compliance:
A. Avoid market loss
B. Avoid fines
C. Market stability
A
B. Avoid fines
10
Q
In Musharakh contract it is right of the bank to:
A. Monitor or supervise the project
B. Draw financing before 28 days
C. Ask for additional funds
D. None of the above
A
A. Monitor or supervise the project
11
Q
Which is the correct statement about Hedge fund:
A. Open to sophisticated investors
B. Wide range of assets
C. Both true
D. Both false
A
C. Both true
12
Q
A fund that tends to provide a steady income with reasonable safety is known as:
A. Fixed income securities fund
B. Balanced fund
C. Asset allocation fund
D. Value stock fund
A
A. Fixed income securities fund
13
Q
What do you get when you divide a fund’s return in excess of a risk free return by its standard deviation:
A. Sharpe ratio
B. Treynor
C. Alpha
D. Beta
A
A. Sharpe ratio
14
Q
Which of the following statements with regard to Mudarba contract (is, are) true:
a. A special type of partnership where one party is financing party, and the second provides the managerial effort in implementing and operating the project
b. Financing partner shares the profit and accepts any loss
c. Working partner shares the profit but is not responsible for loss
d. Sharing profit is based on a predetermined ratio
A. a, b, c, d
B. b, c, d
C. a, b, d
D. a, b, c
A
A. a, b, c, d
15
Q
Which of the following statements, is less related to the benefits of compliance:
A. early detection of any deviation
B. Avoid clients anger
C. Companies that are competent and professional in their conduct would lead to reduction or elimination in customer complaints
D. Effective compliance helps avoid fines and litigation due to non-compliance
A
B. Avoid clients anger
16
Q
When net assets value of a mutual fund is calculated, which of the following liabilities (is-are) taken into consideration:
a. Investment fess b. Office rental
A. Both false
B. Both true
C. B only is true
D. A is true
A
B. Both true
17
Q
Which of the following is open end fund characteristics:
a. No. of units unlimited b. Units listed in stock exchange c. Fund management stands ready to sell or redeem units
A. b is true
B. a and c
C. a only
D. a and b
A
B. a and c
18
Q
An investor portfolio equals the market, as per CAPM Beta is:
A. Equal to 1
B. More than one
C. Less than one
D. No relation
A
A. Equal to 1
19
Q
An investor portfolio equals the market, as per CAPM Beta is:
A. Equal to 1
B. More than one
C. Less than one
D. No relation
A
A. Equal to 1
20
Q
If the industry P/E average is 20 and Qasim Cement stock made EPS of 5 last year, and it is expected to grow by 20% the stock price is:
A. 120
B. 12
C. 20
D. 22
A
A. 120
P/E = 20 EPS = 5*1.2 = 6
P = E * EPS = 20 * 6
21
Q
Which of the following statements about stocks is true
A. If the intrinsic value equals market price then the stock is fairly priced
B. If the intrinsic value is less than market price, the stock is undervalued
C. If the intrinsic value is more than market price, the stock is speculative
D. If the intrinsic value is more than market price, the stock should be avoided
A
A. If the intrinsic value equals market price then the stock is fairly priced
22
Q
Bonds with lower coupon rate will have:
A. Higher market price
B. Lower market price
C. More attraction
D. No relation
A
B. Lower market price
23
Q
The intrinsic value of a bond is the present value of interest payment and principal and:
A. Expected rate of return
B. Required rate of return
C. Expected price
D. Required price
A
B. Required rate of return
24
Q
If the required rate of return on company X is 12% and expected dividends for the coming year is 1.8 and expected growth rate is 6.5%, and EPS is 6.6 what is P/E:
A. 5
B. 9.09
C. 7.66
D. 8.33
A
A. 5
P/E = Market Price of Share / EPS
Market Price of Share = 1.8 / (.12 - .065)
25
Pay out ratio of Manarat Co. is 80% in 2010, thus the retention ratio is:
A. 40%
B. 50%
C. 20%
D. 80%
C. 20%
1 - 80%
26
If (a) bond is rated AAA, and (b) bond is rated BBB which of the following is true:
A. Bond (a) has higher risk (b)
B. Required rate of return on bond (a) is higher than (b)
C. Bond (a) has less risk than (b)
D. Bond (a) expects higher return than (b)
C. Bond (a) has less risk than (b)
27
If the expected earnings are S.R 30 and the company retains 40% of its profits, the dividend growth rate is 10% and the required rate of required rate of return is 16% what is the price:
A. 300
B. 250
C. 330
D. 280
A. 300
SR * 60% = 18
18 / (.16-.10) = 300
28
When assets in a portfolio do not seem to move opposite directions this means:
A. Positive correlation
B. Negative correlation
C. Variance
D. No relation
B. Negative correlation
29
When assets in a portfolio do not seem to move together this means:
A. Positive correlation
B. Negative correlation
C. Variance
D. No relation
D. No relation
30
Who of the following will benefit from calling a bond when interest rate decreases:
A. Issuer
B. Investor
C. Both
D. None
A. Issuer
31
An American company preferred stock price is 100 and the dividends are 8%, what is the amount to be paid for such stock if the required rate of return is 15%:
A. $53.3
B. $530
C. $108
D. $ 155
A. $53.3
32
All of the following are used to value common stock, except:
A. Price to book ratio
B. Price to sales
C. Price total assets
C. Price total assets
33
The degree of dependence of the security’s return to the overall market is called:
A. Correlation
B. Beta
C. Standard deviation
D. C.V.
B. Beta
34
Which of the following securities is (are) valued by dividing dividends by required rate of return:
A. Preferred
B. Common share with zero growth in dividends
C. Common share with constant growth
D. A and B
D. A and B
35
The value of the preferred share is simply the present value of:
A. All dividends plus principal
B. All of the future dividends
C. All of the future dividends plus principal
D. All future dividends
D. All future dividends
36
Measuring relation between two assets that will lie somewhere between -1 and +1 is called:
A. Combination
B. Correlation
C. Variance
D. Difference
B. Correlation
37
Zero dividend growth stock is calculated:
A. By calculating future value
B. Much like preferred stocks
C. By compounding
D. None of the above
B. Much like preferred stocks
P = Dividend / r
38
In a typical industry life cycle, consolidation is followed by:
A. Decline
B. Maturity
C. Start up
D. Expansion
A. Decline
39
The constant growth rate formula is:
A. Retention ratio divided by RoE
B. Payout ratio multiplied by RoE
C. Retention ratio multiplied by RoE
D. Retention ratio plus Roe
C. Retention ratio multiplied by RoE
Retention Ratio = b = (1-payout ratio)
g = b * RoE
40
Default risk is when the bond issuer is unable to make the promised:
A. Interest (coupon)
B. Principal payment
C. Both
D. None
C. Both
41
RoE = 15% and payout ratio 45% the constant growth rate will be:
A. 8.25%
B. 6.75%
C. 4.5%
D. 5.5%
A. 8.25%
g = (1 - payout ratio) * RoE
42
A client who is risk averse towards interest rate and default risk, but willing to invest in bonds, the best advice is:
A. AAA 5 years
B. AAA 10 years
C. BBB 5 years
D. BBB 10 years
A. AAA 5 years
43
# Choose the correct answer:
A. Government bonds suffer from interest rate risk
B. Government bonds don’t suffer from interest rate risk
C. Government bonds don’t suffer from interest risk nor default
D. Government bonds don’t suffer from underwriting risk
A. Government bonds suffer from interest rate risk
44
Which of the following risks is represented by Beta:
A. Market risk
B. Diversifiable risk
C. Unsystematic risk
D. Total risk
A. Market risk
45
Which of the following will raise the present value of a capital project cash flows:
A. A drop of discount rate
B. Increase in discount rate
C. Extending project period with the same all cash flow
D. Reducing project period with the same all cash flow
A. A drop of discount rate
46
When analysts, to begin with, assess the state of the macro economy in terms that will have an impact on the value of the security, this is called:
A. Top down approach
B. Bottom up approach
C. Horizontal analysis
D. Vertical analysis
A. Top down approach
47
Which of the following assets is considered as a benchmark for risk free investment:
A. Short term treasury bills
B. Short term corporate bonds
C. Short term government bonds
D. Zero beta stock
A. Short term treasury bills
48
Bonds with high default risk are referred to as:
A. Zero coupon bonds
B. Speculative (junk)
C. Investment grade
D. Subordinated bonds
B. Speculative (junk)
49
Constant growth rate in valuation of stocks depends on:
a. Return on equity b. retention ratio c. dividends
A. A only
B. A and B
C. A and C
D. B and C
B. A and B
50
Bonds with relatively low default risk
A. Speculative (junk)
B. High yield bond
C. Investment grade
D. Zero coupon bond
C. Investment grade
51
In which type risk of default is reduced by margin:
a. Forward contracts b. Future contract
A. Both false
B. Both true
C. A is correct
D. B is correct
D. B is correct
52
Stock price is S.R 40, EPS to S.R 5 dividends S.R 2 what is the payout ratio
A. 40%
B. 60%
C. 5%
D. 15%
A. 40%
DPS / EPS
53
When quick ratio is rating high for the lenders of the company, this means:
A. Spending is more than revenue
B. It is not relatively safe to lend the company
C. Revenue exceeds spending
D. It is relatively safe to lend the company
D. It is relatively safe to lend the company
54
What do we call the date when Board of D. recommends distribution of dividends:
A. Record date
B. Ex date
C. Announcement date
D. Disbursement date
C. Announcement date
55
Stock market price is S.R12 what will be the price after a capitalization of 2:1
A. S.R 4
B. S.R 12
C. S.R 8
D. S.R 10
A. S.R 4
Capitalization = Bonus Issue
If the ratio is 2:1, we must always read it as 2 (free) for every 1 (share held).
12 / 3 = 4
56
The par value of a stock is S.R 5, the company distributed S.R 10 as dividends, the market price of the stock is S.R 125, the dividend yield will be:
A. 8%
B. 5%
C. 12.5%
D. 10%
A. 8%
Dividend per share (DPS) / Share Price
57
An amount of a.1000 S.R will be received after two years, if interest rate is 10% what is the present value:
A. S.R 826
B. S.R 1200
C. S.R 900
D. S.R 910
A. S.R 826
1000 / 1.1^2
58
Which of the following is not included in a financial statement:
A. Expected cash flow for the coming year
B. Income statement for the year
C. Management opinion about company's forecast
D. Balance sheet at the end of the finical year
C. Management opinion about company's forecast
59
With regard to income statement which is true:
A. Describes the revenues achieved
B. Reflects all revenues and expenses for all years
C. It is sometimes called the profit and loss statement
D. Provides forecast of the companies net profit
C. It is sometimes called the profit and loss statement
60
The lower sales to total asset ratio relative to the industry average:
A. The lower the effectiveness with which the assets are being used
B. The lower the profitability
C. The lower the liquidity
D. The lower P/E ratio
A. The lower the effectiveness with which the assets are being used
61
Which of the following amounts will be deducted as expenses to get net income:
a. Interest costs b. Dividends costs
A. Both true
B. Both false
C. A is true
D. B is true
C. A is true
62
The stock par value after stock spilt will
A. Appreciate
B. Depreciate
C. No change
D. According to the split ration
B. Depreciate
63
The quick ratio is measured by:
A. Excluding inventory from assets
B. The current assets excluding inventory to the current liabilities
C. Excluding inventory from current liabilities to current assets
D. Return on assets less inventory over liabilities
B. The current assets excluding inventory to the current liabilities
64
Cash flow related to borrowing is from:
A. Investing activities
B. Financing activities
C. Operating activities
D. None of the above
B. Financing activities
65
Cash flow related to borrowing is from:
A. Investing activities
B. Financing activities
C. Operating activities
D. None of the above
B. Financing activities
66
Cash flow related to acquisition and sale of assets is from:
A. Investing activities
B. Financing activities
C. Operating activities
D. None of the above
A. Investing activities
67
Cash flow related to primary functions of the firm is from:
A. Investing activities
B. Financing activities
C. Operating activities
D. None of the above
C. Operating activities
68
The rate of return is measured by calculating
a. Dividend yield b. capital gain
A. Both true
B. Both false
C. A is true
D. B is true
A. Both true
69
A company has just announced 5% bonus issue which means:
A. Shareholders will get one new share for each 5
B. Shareholders will get one new share for each 20 shares
C. Shareholders will get 5 new shares for each 100 shares
D. Shareholders will get one new share for each 100 shares
B. Shareholders will get one new share for each 20 shares
For example when a company offers 1:5 bonus shares, it means a share holder will get 1 free share for 5 shares. So if an investor holds 100 shares at the time of bonus then they will become 120 shares.
70
The rate of return on an investment represents:
A. Total cash flows as a fraction of the amount invested
B. Difference between selling and purchase price
C. Converted proportional return
A. Total cash flows as a fraction of the amount invested
71
When a company chooses to split shares 2 for 1 stock, the effect on equity, if any, is:
A. Does not change at all
B. Depends on capital
C. Depreciate by 50%
D. Market share deprecates 50%
A. Does not change at all
72
Which of the following statements about balance sheet is false:
A. Balance sheet is a position statement showing all its future assets, liabilities and owner’s equity
B. A position statement showing all assets and liabilities at a particular point in time
C. A position statement showing all assets, and liabilities during a certain period of time
D. Balance sheet shows equity, assets, and liabilities
A. Balance sheet is a position statement showing all its future assets, liabilities and owner’s equity
73
In a balance sheet the total assets should equal:
A. Total assets, liabilities and net income
B. Total liability, retained earnings, and capital
C. Total liabilities and capital
D. Total liabilities, retained earnings
C. Total liabilities and capital
74
To calculate return by compounding period by period return an investor will use:
A. Arithmetic average
B. Geometric average
C. Statistic matrix
D. Arithmetic mean
B. Geometric average
75
Which of following ratios is related to the gearing (leverage) of the company:
A. Sales to total assets
B. Debt to equity
C. Inventory turn over
D. Liquidity ratio
B. Debt to equity
76
An investor holding convertible bonds has the option of converting them to:
A. Common stocks
B. Preferred stocks
C. Both correct
D. Both false
A. Common stocks
77
When GDP of a country witness a minor increase in one quarter followed by 2 consecutive negative quarters, then the country is in:
A. Contraction
B. Prosperity
C. Recovery
D. Depression
A. Contraction
78
Which type of secondary market trading has the ability to prevent sudden moves in prices
a. Trading in the financial market b. trading over the counter
A. Both correct
B. Both false
C. a is correct
D. b is false
C. a is correct
79
A Saudi living in USA spends all his income there, for the Saudi economy this will be part of:
A. GDP
B. GNP
C. Real GDP
D. Nominal GDP
B. GNP
80
Arrange the following according to return lowest to highest:
a. Preferred stocks b. Common stocks c. Corporate bonds d. Government bonds
A. Dcab
B. Cdab
C. Bacd
D. Abdc
A. Dcab
81
The cost of funds raised through the issue of preferred stocks is ___________ the cost of bonds
A. Higher than
B. Lower than
C. Equal to
A. Higher than
82
A scheme has securities and assigns the same importance to every stock comprising the average:
A. Value weighting
B. Equal weighting
C. Price weighting
D. Average weighting
B. Equal weighting
83
A. The capital markets can be subdivided into two: The bonds and stocks
B. The bonds are government and corporate
A. Both correct
B. Both wrong
C. A is correct
D. B is correct
D. B is correct
84
Consider the short selling of 100 shares at the price of S.R 50 each, and the broker requested a 100% initial margin, the required collateral is worth
A. 5000
B. 2500
C. 500
D. 1000
A. 5000
100*50 = 5000 * 100% = 5000
85
When a bond is traded at premium it means:
A. Trade below par value
B. Coupon rate is lower the interest rate
C. Coupon rate is higher than the interest rates
D. None of the above
C. Coupon rate is higher than the interest rates
86
In a firm commitment arrangement, the investment bank will:
A. Make the total issue subject to rules
B. Pay in advance the total value of the issue
C. Sell the issue and the unsold securities are returned to the issuing firm
B. Pay in advance the total value of the issue
87
When the investor borrows stocks and sell them planning to purchase them at a lower price, this is:
A. Covered selling
B. Stop limit selling
C. Short selling
D. Stop loss selling
C. Short selling
88
In Tadawul, the system will list the buy orders in:
A. Smaller quantity first
B. Lower price first
C. Higher price first
D. Larger quantity first
C. Higher price first (descending)
89
To which factor will lead to an increase in US currency:
A. Increase in GDP
B. Increase of money supply
C. Selling dollars
D. None of the above
A. Increase in GDP
90
An indicator that tend to precede the cycle is:
A. Correlating indicator
B. Leading
C. Lagging
D. Coinciding
B. Leading
91
An increase in GDP indicates:
A. A defiant in balance of payment
B. Depression
C. Decrease in expenditure
D. Expanding economy
D. Expanding economy
92
Nominal GDP difference from real GDP in that:
A. It incorporates both the production of goods and service based on money of higher prices
B. It excludes the impact of inflation based on money with the same purchasing power
C. It incorporates nationals investments abroad
B. It excludes the impact of inflation based on money with the same purchasing power
93
Which of the following is direct finance and indirect finance:
A. IPO and Loan
B. Trading stocks and time deposits
C. Loan and IPO
D. Trading and loan
C. Loan and IPO
94
If the bond is a floating rate bond this means:
A. Bond price floating
B. Interest rates paid on the bond are determined by market interest rates
C. Current yield is floating
D. None of the above
B. Interest rates paid on the bond are determined by market interest rates
95
The Central Bank increases money supply through:
A. Buying securities
B. Selling securities
C. Increase discount rate
D. Increase reserve requirement
A. Buying securities
96
The Central Bank increases money supply through:
A. Buying securities
B. Selling securities
C. Increase discount rate
D. Increase reserve requirement
A. Buying securities
97
In a price weighting scheme a stock with a greater influence on the average:
A. Stock with high price
B. Stock with low price
C. The stock of a company with a larger value
D. The stock of a company with a lower value
A. Stock with high price
98
Under what circumstances the bond price tends to depreciate in price as it approaches maturity:
A. Discount bond
B. Premium bond
C. Par bond
D. Zero coupon
B. Premium bond
99
Exchange trading requirements:
A. Organized
B. Over the counter
C. Both
D. None
A. Organized
100
When unemployment rate decreases, the effect on GDP:
A. Negative
B. Positive
C. No effect
D. According to size against results
B. Positive
101
When a person sells a security to his son or a family member and then buys back security on the same day to create an illusion. This is called:
A. Hedging
B. Short selling
C. Churning
D. Wash sale
D. Wash sale
102
According to limit order, the broker will execute:
A. Immediately regardless of market price
B. Only after protecting position through a reverse transaction
C. After a certain time
D. When market price reaches the specified price
D. When market price reaches the specified price
103
Which of the following includes income earned by foreigners in the domestic economy:
a. GNP b. GDP
A. Both correct
B. A only
C. Both wrong
D. B only
D. B only
104
An investor buys 60 ABC shares currently trading at SR 80 per share, assume the initial margin is 50% and the maintenance margin is 35%, and that the broker charges 10% per year for the loan. Now assume that the stock price appreciates by 15% to SR 92 by the end of the year. The investor sells his shares and settled his transaction with the broker. What is the return generated by the investor?
A. 20%
B. 10%
C. 35%
D. 50%
A. 20%
60 * 80 = 4800 @ 50% = 2400
1.1 * 2400 = 2640
60 * 92 = 5520
(5520 - 2640 - 2400) / 2400 = .2
105
An investor buys 60 ABC shares currently trading at SR 80 per share, assume the initial margin is 50% and the maintenance margin is 35%, and that the broker charges 10% per year for the loan. What is the price below which the investor has to replenish his margin with the broker?
A. 35%
B. 61.54
C. 123
D. 2400
B. 61.54
(60P-(60*80*.5)) / 60P = 35%
60P – 2400 / 60P = 35%
Solve for P
SR 61.54
106
Anwar company stock price stood at SR 120 at the beginning of 2011. On 01/04/2011 the company declared a 3 for 2 stock splits. What is the approximate new market price for Anwar Stock?
A. 240
B. 120
C. 80
C. 80
Pre-split:
Shares 2, Share Price 120, Market cap 240
Post-split:
Shares 3, Share Price ?, Market cap 240
Share Price = Market Cap / Number of Shares = 240/3 = 80
107
Stock market price is S.R12 what will be the price after a capitalization of 2:1
A. 3
B. 4
C. 2
D. 1
B. 4
Capitalization = Bonus Issue
If the ratio is 2:1, we must always read it as 2 (free) for every 1 (share held).
Before 12 / 1 = 120
Bonus 2 shares, after… 12 / 3 = 4
108
A company has just announced 5% bonus issue which means the new shareholders will get...
A. 10 shares
B. 5 shares
C. 20 shares
D. No shares
C. 20 shares
Shareholders will get one new share for each 20 shares
For example when a company offers 1:5 bonus shares, it means a share holder will get 1 free share for 5 shares. So if an investor holds 100 shares at the time of bonus then they will become 120 shares.
109
The company’s fixed assets is 200, current assets 100, inventory of 50, long term liabilities of 300, and current liabilities of 50, what is the current ratio?
A. 2
B. 10
C. 20
D. 15
A. 2
Current ratio = current assets / current liabilities = 100 / 50 = 2.
110
The share price is $40, and earning per share last year was $5, dividends per share distributed were $2. What is the dividend yield?
A. 50%
B. 20%.
C. 10%
D. 40%
D. 40%
Dividend yield = dividends / earnings = 2 / 5 = 40%
111
The company’s profits were 30 and the market price of the shares was 15. What is the PE ratio?
A. 50%
B. 20%.
C. 10%
D. 40%
A. 50%
PE ratio = price / earnings = 15 / 30 = 50%
112
The company’s current assets is 350, within it is inventory of 100, and current liabilities of 200, what is the acid ratio?
A. 1
B. 2.5
C. 1.25
D. 0.5
C. 1.25
Quick or Acid test ratio = Current Assets – Inventory / Current Liabilities
(350-100)/200 = 1.25
113
A company with equity of 50,000 and assets of 100,000 has a revenue of 32,700, their inventory was 20,000, their distribution expense was 1,200 and other expenses 1,800. What is their net profit?
A. 12,700
B. 31,500
C. 29,700
D. 50,000
C. 29,700
Net profit = 32,700 – 1,200 – 1,800 = 29,700.
114
The company’s earnings were 45 and the dividends distributed was 15, what is the dividend yield?
A. 3
B. 33.33
C. 66.66
D. 5
B. 33.33
Dividend yield = dividends / earnings = 15 / 45 = 33.33%
115
The company’s quick ratio is 1.5, their inventory is 100, current assets of 400, what is their current ratio?
A. 200
B. 1.5
C. 300
D. 2
D. 2
Current ratio = current assets / current liabilities;
quick ratio = current assets – inventory / current liabilities
1.5 = (400 – 100) / current liabilities
Current liabilities = (400 – 100) / 1.5 = 200
Current ratio = 400 / 200 = 2
116
Company’s gross profit is 200, with net profits of 30. Their total assets was 300 and total liabilities were 100. What is the return on equity?
A. 3
B. 1
C. 2
B. 1
Return on equity = net income / equity
Equity = Total assets – total liabilities = 300 – 100 = 200
RoE = 200 / 200 = 1
117
The long term debt of the company is 100, short term debt of 50, with total assets of 200, total liabilities of 150. What is their debt ratio?
A. 25%
B. 75%
C. 50%
D. 100%
C. 50%
Debt ratio = Long term debt / total assets = 100 / 200 = 50%
118
The company’s revenue is 1000, with an operating income of 200, their fixed charges is 40, long term debt is 100. What is the interest cover?
A. 2.5
B. 5
C. 25
D. 50
B. 5
Interest cover = operating income / interest expense = 200 / 40 = 5
119
Company shows earnings per share of SR 6.20, dividends per share of SR2.40 and a market price of SR 50 per share. What is its current ‘pay-out ratio’?
A. 2.58
B. 38.7
C. 8.06
B. 38.7
Payout ratio = dividends / earnings = 2.4 / 6.2 = 38.7%
120
Company’s earnings per share, dividend per share and price per share in the prior year are SR 6.26, SR 2.50 and SR 53 respectively. What is its dividend yield?
A. 4.72
B. 21.2
C. 2.5
A. 4.72
Dividend yield = dividends / price last year = 2.50 / 53 = 4.72%
121
Company’s revenue is 200, total assets of 100, with a net income of 20, owner’s equity of 150. What is the company’s return on asset?
A. 20%
B. 40%
C. 60%
D. 10%
A. 20%
Return on asset = sales to assets * net profit margin
Sales to Assets = sales / total assets = 200 / 100 = 2
Net profit margin = net income / sales = 20 / 200 = 0.1
Return on Assets = 2 * 0.1 = 0.2 = 20%
122
The company’s net income is 240, shareholder’s equity is 10000, total assets 16000, their have recently increased their net income to 300, what is the return on equity?
A. 3%
B. 1.5%
C. 30%
A. 3%
Return on equity = Net income / equity OR
Return on equity = Return on Assets * Total Assets / equity
Return on equity = net income / equity = 300 / 10000 = 3%
123
Ahmad purchased a stock for SR 100 one year ago. The stock is now worth SR150. During the year, the stock paid a dividend of SR20. What is the total return to Ahmad from owning the stock? (Round your answer to the nearest whole percent.)
A. 50%
B. 25%
C. 70%
D. 40%
C. 70%
(150 - 100) / 100 + 20 / 100 = 0.5 + 0.2 = 0.7 = 70%
124
Asset 1 is worth 300,000 SR which achieved a return of 10%, Asset 2 is worth 200,000 and returned 16%. What is the weighted average?
A. 60%
B. 40%
C. 16%
D. 12%
D. 12%
Total Assets = 300,000 + 200,000 = 500,000
Assets 1 = 300,000 / 500,000 = 60%
Assets 2 = 200,000 / 500,000 = 40%
Weighted average = 60% * 10% + 40% * 16% = 12.4%
125
An investor’s real return is 8.49%, inflation is 6%, what will be his expected return?
A. 14.9%
B. 12.2%
C. 10%
D. 2.49%
A. 14.9%
1.0849 * 1.06 – 1 = 14.9%
126
If the company’s share price is 12 SR, Beta of 6, T-Bill return of 4%, and the overall market return is 8%, what is his expected return?
A. 2.21%
B. 12.3%
C. 4.48%
D. 28%
D. 28%
R = 4% + 6(8%-4%) = 28%
127
Beta is 1.4, risk free rate is 3.5%, FTSE return is 6.5%, market premium is 3%, what is the expected return?
A. 7.7%
B. 3.3%
C. 1.1%
D. 2.2%
A. 7.7%
R = 3.5%+1.4(3%) = 7.7%
128
If the company’s payout is 40% from its earnings, the net income is 2 million, and the equity is 20 million. What is the growth rate?
A. 10%
B. 6%
C. 20%
D. 15%
B. 6%
```
g = (1 – payout) * RoE
RoE = 2 / 20 = 0.1
g = 60% * 0.1 = 0.06 = 6%
```
129
Your land will be worth SR 20 million in 10 years. The discount rate is 10% per year. What is the present value of the land?
A. 22 million
B. 11 million
C. 7.7 million
C. 7.710 million
130
An investor deposits SR 1,000 each at the end of every year for 5 years into a bank that pays 10% per year.
The future value will be: 6105.1
131
What is the present value of S.R. 10,000 to be received 5 years from today if the discount rate is 8% per year?
6805
132
An investment promises to pay S.R. 100 every year for the next five years. Interest rate is 10%.
The present value is: 379.08
133
Assume that a stock purchased for SR 185 paid a dividend of SR 10 during the year and was sold at year end for SR 200. The rate of return over the one year holding period would be…
13.5% (8.1% from capital gain and 5.4% from dividend yield)
134
What is the present value of an investment that promises to pay S.R.100 every year, that increases at the rate of 5% per year forever, with the first payment one year from now? The interest rate is 8% per year.
3,333
135
What is the present value of an investment that promises to pay S.R.100 every year forever, with the first payment one year from now? The interest rate is 8% per year.
100 / 8% = 1,250
136
The S.R. 1,000 is placed in a saving account that pays 8%, the interest is compounded quarterly. The balance in the saving account at the end of the 5th year is:
= 1485.94
137
You just purchased a piece of land North Riyadh for 10 million Saudi Riyals and you expect a 12 percent annual rate of return on your investment, how much will you sell the land for in 10 years?
= 31058
138
When a person buys all or most of the available quantities of a certain security, to create a form of monopoly that may later enable him to sell the security at a higher price, he is said to be:
A. Churning
B. Wash Shale
C. Cornering Market
D. Illegal trade
C. Cornering Market
139
When a broker engages in frequent and unnecessary trading on behalf of the client, it is said to be?
A. Churning
B. Wash Shale
C. Cornering Market
D. Illegal trade
A. Churning
140
If there are plenty of buy and sell orders, the market is said to be?
A. Narrow range with depth
B. Wide range with depth
C. Broad markets with spread
D. Small margins with depth
A. Narrow range with depth
The market for a security is said to have depth, if there are plenty of buy orders and sell orders within a narrow range around the current market price. In a deep market, the existence of many orders means that the price of the security is quickly brought to equilibrium as the demand and supply for that security changes.
In contrast, shallow markets are characterized by shortages or oversupply resulting in discontinuity of buy and sell orders and large price jumps. If supply exceeds demand the price of the security declines by a large amount that may cause material losses to holders of the security, which may force them to postpone selling the security. On the other hand, if demand exceeds supply, prices rise to such a degree that potential buyers may postpone the purchase of the security.
141
True or False: Market makers are willing to accept smaller spreads for higher turnover volume?
True.
Large transaction volumes characterize wide or broad markets. In such markets, not only are prices able to change continuously because of the existence of lots of orders (as in a deep market), but the order sizes above and below the current market price are also large. As a result, there is no incentive for buyers or sellers to postpone their decisions. Market makers are willing to accept smaller margins (spread) as the high turnover volume compensates for the small margins.
142
Dividends are distribution of earnings to
(A) Existing Shareholders of the company only
(B) The company shareholders, suppliers and creditors
(C) Shareholders, management and board of directors of the company
(D) Owners, employees and government concerned authorities.
(A) Existing Shareholders of the company only
