Chapter 1 - Equities

Question 1

What are the 4 types of company?

Answer 1

Private company limited by shares
Private company limited by guarantee
Private unlimited company
Public limited company

Question 2

Formula for figuring out the premium or discount on convertible shares

Answer 2

(Conversion ratio x market price of convertible shares)/market price of ordinary shares) -1

Question 3

4 requirements of GDR’s

Answer 3

Must be freely transferable
Must be admitted to trading on a recognised exchange
Expected aggregate market value of all GDR’s must be at least £30m
At least 10% of the GDR’s must be in public hands

Question 4

What is the formula for a warrant conversion premium

Answer 4

(Exercise price + price of the warrant)/ordinary share price -1)

Question 5

Formula for a call warrant payout

Answer 5

(Price of the underlying security - strike price)/ parity

Formula for put warrant payout is same except it is strike price - security price

Question 6

What are delta, vega and theta?

Answer 6

Delta: sensitivity to movements in underlying asset price
Vega: sensitivity to a change in implied volatility
Theta: sensitivity to time

Question 7

A potential investor is looking to establish how a limited company is run and how decisions are taken by the directors and shareholders. This information can be found…

Answer 7

In the Articles of Association

Question 8

Call options are usually issued for longer periods than warrants, true or false

Answer 8

False, warrants are normally issued for longer periods than call options