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Exam
Name___________________________________
MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.
1)
To decide a price for a future issue, and the allocation of shares, financial advisers may contact
major investors and ask them to place bids over a period of a few days. What term is used for this
approach?
1)
A)
Limit bidding
B)
Reverse takeover
C)
Book building
D)
Strike bidding
2)
What is meant by the term ‘rights issue’?
2)
A)
An invitation to existing shareholders to purchase additional shares in the company
B)
An invitation to new shareholders to purchase additional shares in the company
C)
The issue of a document clarifying investor’s right
D)
An issue of shares specifically aimed at new investors
3)
From a shareholder's viewpoint, what is the key benefit of limited liability?
3)
A)
Shareholders are only liable up to the amount they have invested or promised to invest.
B)
The company’s liabilities are limited to the total authorised capital.
C)
The company’s liabilities are limited, ensuring that shareholders can always recover their
investment.
D)
Shareholders are only liable up to the amount that the company owes its creditors.
4)
Who owns a plc?
4)
A)
Senior management
B)
The debt capital holders
C)
Banks who have lent money to the organisation
D)
The shareholders
1
5)
An investor wants a tax-efficient vehicle for investing in small unquoted firms . The investor also
wants to reduce risk by pooling the investment with others. Which approach is most suitable?
5)
A)
Invest in the Enterprising Investment Market
B)
Become a Business Angel
C)
Invest in a Venture Capital Trust
D)
Invest in the Alternative Investment Market
6)
Which three of the following are key roles of the broker during the issuing process?
6)
A)
To promise to buy a parcel of unbought shares
B)
To generate investor interest
C)
To maintain an interest post-flotation
D)
To offer knowledge about the stock market
7)
Which three statements link to explain the meaning of the term 'financing gap'?
7)
A)
Small companies tend to rely on retained earnings and bank loans.
B)
Rapidly growing medium sized companies can easily access stock market funds.
C)
Only mature companies can generally access debt or equity capital through capital markets.
D)
The stock market is able to adjust its operations to suit a wide range of companies seeking
funds.
8)
Which three of the following are advantages to the firm of preference share capital?
8)
A)
Preference shares are an alternative shock absorber to ordinary shares because of the
possibility of avoiding the annual cash outflow due on dividends.
B)
Preference shares are an additional source of capital but do not dilute the influence of the
ordinary shareholders on the firm’s direction.
C)
Preference dividends can be omitted for one or more years.
D)
Preference shareholders receive all the extraordinary profits when the firm is doing well.
2
9)
An investor does not have the cash to buy shares in a 5 for 1 rights issue. The theoretical value of
the share ex-rights is £3.20, and the subscription price is £3. What is the value of a right on one
share?
9)
A)
20p
B)
15p
C)
100p
D)
4p
10)
If a large company like BT wanted to raise further finance by selling shares to investors, where
would they be most likely to offer the shares?
10)
A)
In techMARK
B)
In the Alternative Investment Market
C)
In the secondary market of the London Stock Exchange
D)
In the primary market of the London Stock Exchange
11)
How is the value of a right on a new share calculated during a rights issue?
11)
A)
Actual market value of share ex-rights - actual market value
B)
Theoretical market value of share ex-rights - subscription price
C)
Theoretical market value of share ex-rights - actual market value
D)
Actual market value of share ex-rights - subscription price
12)
Companies need expert guidance through the issuing process. What organisations provide this?
12)
A)
FSAs
B)
Sponsors
C)
Brokers
D)
Accountants
13)
What type of investment offers a fixed rate of return, and is part of the shareholders’ funds but not
part of the equity capital?
13)
A)
Authorised but unissued shares
B)
Preference shares
C)
Ordinary shares
D)
Debt capital
3
14)
Which two statements accurately describe the taxation of dividends and loans?
14)
A)
Interest payments on a loan are tax deductible.
B)
Dividends can be used to reduce a firm's taxable profits.
C)
Dividends are paid out of after-tax earnings.
D)
The company will generally prefer equity finance since it is more tax efficient.
15)
The tasks below must be carried out in relation to a new equity issue. Which of them is performed
by sub-underwriters?
15)
A)
Insure the sponsor and broker in a new issue against a negligence claim
B)
Set out to purchase all the shares offered by the company to the market and then sell those
shares to institutional investors for a higher price
C)
Examine the documentation presented to the investing public to confirm its veracity
D)
Agree to purchase a parcel of those shares not taken up by the general investing public
16)
Which three of the following are arguments for joining a stock exchange?
16)
A)
Liquidity for existing shareholders
B)
City is short-termist
C)
Discipline on management to perform
D)
Access to new capital for growth
17)
Which three of the following are requirements for a company that wants to float on the Official
List?
17)
A)
A sponsor; a corporate broker, and a registrar
B)
25 per cent of share capital in public hands
C)
Predictions for the first five years’ accounts
D)
A prospectus
4
18)
Which two of the following statements are correct?
18)
A)
It is more expensive to obtain a quotation on the Official List than the Alternative Investment
Market.
B)
Companies with a price quote on PLUS (previously OFEX) are not regulated by the UK
Listing Authority.
C)
Private equity is a term to describe the equity capital of family owned limited companies. It
does not cover public limited companies with shares held by institutional shareholders.
D)
To join the Alternative Investment Market a company is required to have 3 years of accounts
available for inspection.
19)
Which of the following is the most suitable source of finance for high-growth-potential unquoted
firms, who require amounts of around £5m?
19)
A)
Enterprise Trust
B)
Venture Capital Trust
C)
Alternative Investment Market
D)
A Business Angel
20)
Which three of the following are tasks that a firm must carry out after the issuing process (or
explain the annual reports)?
20)
A)
To disclose dealing by Directors in company shares
B)
To issue annual financial statements
C)
To ensure fair pricing of shares
D)
To disclose price-sensitive information promptly
21)
Which two of the following accurately describe the tax situation regarding preference shares?
21)
A)
Tax on preference shares is applied on the basis of gross profits.
B)
Tax is payable on the firm's profit before the deduction of the preference dividend.
C)
The dividend is regarded as an appropriation of profits.
D)
There is an overall tax disincentive to issue preference shares.
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22)
Which two statements accurately describe the situation regarding extraordinary profits that a
company may earn?
22)
A)
Shareholders may be recipients of any surplus.
B)
Shareholders may only be asked to re-invest extraordinary profits.
C)
Lenders do not generally benefit from extraordinary profits.
D)
Lenders generally contribute to extraordinary profits.
23)
What is the theoretical ex-rights price?
23)
A)
The mean price of the existing shares and their historic values
B)
The weighted average of the price of the existing shares and their historic values
C)
The mean price of the existing shares and the new shares
D)
The weighted average of the price of the existing shares and the new shares
24)
Which of the various UK exchanges is the least heavily regulated?
24)
A)
OL
B)
techMARK
C)
AIM
D)
PLUS
25)
Which of the following is a key outcome for directors of companies that have obtained full listing?
25)
A)
Listing increases the company's cash flow.
B)
They have far greater freedom to borrow funds.
C)
They have far greater freedom to pay dividends.
D)
Their room for discretion regarding dividend payments is restricted.
6
26)
Which of the following is a major disadvantage to the firm of preference share capital?
26)
A)
Tax is not payable on the firm’s profit before the deduction of the preference dividend.
B)
The cost to the company is lower than is available through bond issues.
C)
The higher risk causes preference shareholders to demand a higher level of return than debt
holders.
D)
There are limits to safe levels of borrowing.
27)
What is the key factor that distinguishes an offer for sale from an offer for subscription?
27)
A)
An offer for subscription is only partially underwritten.
B)
An offer for subscription is only made through intermediaries.
C)
An offer for subscription is always at a lower price.
D)
An offer for subscription is only made to existing shareholders.
28)
Which of the various UK exchanges is the most heavily regulated?
28)
A)
techMARK
B)
AIM
C)
OL
D)
PLUS
29)
Which three of the following are types of preference share?
29)
A)
Authorised
B)
Cumulative
C)
Participating
D)
Convertible
30)
A company has authorised capital of £9m. It has issued all the preference shares (value £4m) but
only £3m of the ordinary shares. What term is used for the remaining £2m?
30)
A)
Uninvestable share capital
B)
Share premium capital
C)
Authorised but unissued share capital
D)
Unissued share capital
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31)
Which organisation regulates the trading of equities, gilts, and preference shares.
31)
A)
The Bank of England
B)
The Official List
C)
The London Stock Exchange
D)
The Exchequer
32)
Which three of the following statements correctly describe the different types of company?
32)
A)
Public limited companies must display the suffix ‘plc’.
B)
Private companies have the suffix ‘Limited’ or ‘Ltd’.
C)
A private company must have a stated minimum amount of share capital.
D)
Private companies are the most common form of company.
33)
Which three of the following are arguments against joining a stock exchange.
33)
A)
There is an excessive focus on return on capital.
B)
There is increased customer recognition.
C)
The City does not understand entrepreneurs.
D)
Dealing with 'City' folk is time consuming.
34)
Assuming that there is no change in the share price during a rights issue, how is shareholder value
affected by the issue?
34)
A)
It does not change.
B)
The change is unpredictable.
C)
It increases.
D)
It decreases.
35)
Which three of the following statements correctly relate to shares or shareholders?
35)
A)
Ordinary shareholders are the last in the queue to have their claims met.
B)
The shareholder will always receive back the original capital invested.
C)
Shareholders have the right to exercise control over the company.
D)
Ordinary shares represent the equity share capital of the firm.
8
36)
Which two statements best describe a company's debt capital holders?
36)
A)
They receive interest and may recover capital.
B)
They will always receive back their original capital.
C)
They have an equity interest in the company.
D)
They have no formal control.
37)
What is meant by ‘vendor placing’?
37)
A)
Giving shares to potential suppliers
B)
Issuing preference shares for sale to financial advisers
C)
Issuing shares for sale only through financial advisers
D)
Giving shares in exchange for a business
38)
A firm's current share price is £4. It has 50m shares in issue and plans to sell a further 10m shares in
a 1 for 5 rights issue at a price of £3 per share. What is the ex-rights price?
38)
A)
£3.83
B)
£3.53
C)
£3.50
D)
£4.83
39)
The par value of shares in a particular company is 100p. The price received by the company for the
shares is 400p. What is the difference in value (300p) called?
39)
A)
Share value
B)
Shareholder premium
C)
Ordinary share capital
D)
Authorised share capital value
9
40)
Which three of the following statements correctly apply to preference shares?
40)
A)
Preference shares usually carry voting rights.
B)
When compared with bonds, they offer a higher rate of return but at higher risk to the
investor.
C)
The dividend on them is paid before anything is paid out to ordinary shareholders.
D)
They usually offer their owners a fixed rate of dividend each year.
41)
What are ‘placings’?
41)
A)
New shares aimed at a new investors
B)
New shares sold directly to a group of external investors
C)
Ordinary shares aimed at existing investors
D)
Preference shares aimed at existing investors
42)
Which two statements best describe the costs of equity when compared with the cost of debt
capital?
42)
A)
Investing via debt finance is less risky for investors.
B)
Equity finance is less expensive for companies.
C)
Investing via equity finance is less risky for investors.
D)
Debt finance can be less expensive for companies.
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Answer Key
Testname: C10
11
