Quiz chapter 10 - Equity Markets Flashcards Preview

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Flashcards in Quiz chapter 10 - Equity Markets Deck (18):
1

1. Residual claims are basic ownership claims in a corporation.
a. True
b. False

F

2

2. In liquidation, preference shareholders are entitled to the issue price of their preference shares plus
accumulated dividends before other creditors have been paid and after ordinary shareholders are paid.
a. True
b. False

F

3

3. The secondary market for capital market securities is important because it provides funds directly to
deficit spending units.
a. True
b. False

F

4

4. Primary capital market securities provide marketability and possibilities for investors to alter the
riskiness of their portfolios.
a. True
b. False

F

5

5. Stock with betas less than one tend to have more price variability than the market.
a. True
b. False

F

6

6. Franking credits are credits made to limited liability companies.
a. True
b. False

F

7

7. A market order is an order to buy or sell at the best price available at the time the order reaches the
market.
a. True
b. False

T

8

8. A dividend reinvestment scheme is a company scheme in which dividends may be sold on the
market if shareholders do not want to subscribe to a rights issue and increase their shareholdings.
a. True
b. False

F

9

9. The most distinguishing feature of ordinary shares is that they are entitled only to a residual claim
against the firm's cash flows or assets.
a. True
b. False

T

10

10. Contributing shares mean shares that can be converted into ordinary shares at a predetermined
ratio.
a. True
b. False

F

11

11. Share market indices provide a useful tool to summarise the vast array of information generated by
the continuous buying and selling of shares.
a. True
b. False

T

12

12. A stock, which is expected to pay a $4 dividend next year, growing constantly at 6%, is priced to
yield a required return of 18%, is selling for $33.33.
a. True
b. False

T

13

13. The market rate of return on a $100 par value preferred stock, priced at $90, paying an $8.00
annual dividend, is 8 per cent.
a. True
b. False

F

14

14. Dividend imputation is the system whereby dividends are 'grossed up' by the franking credits.
a. True
b. False

T

15

15. Nonparticipating is a feature of preference shares which means the firm cannot pay a dividend on
its ordinary shares until it has paid the preference shareholders the dividends in arrears.
a. True
b. False

F

16

16. Preference shares may be redeemable.
a. True
b. False

T

17

17. Share splits encompass the reduction of the number of issued shares accompanied by a rise in
value.
a. True
b. False

F

18

18. A secondary market is said to have market depth if there exist orders both above and below the
price at which a security is currently trading.
a. True
b. False

T