Chapter 10: Monetary Investment Instruments

Question 1

Typical characteristics of ordinary shares

Answer 1

• Co-owners in company
• Have voting power on issues such as take-overs, mergers and other major aspects.
• Receive profit-portion as dividends
• Pre-emptive right to any new shares
• Limited liability
• Negotiable (and liquid)
• Can generate capital gains
• Ordinary shareholders have a last claim to company assets & profits.

Question 2

5 Types of preference shares

Answer 2

• Cumulative
• Non-cumulative
• Participating
• Convertible
• Redeemable

Question 3

Cumulative Preference Shares

Answer 3

If the company does not have the cash to pay dividends, then the dividends will accumulate and will be paid back as soon as there are funds available.

Question 4

Non-cumulative Preference Shares

Answer 4

No outstanding dividends from previous years will be paid back

Question 5

Participating Preference Shares

Answer 5

These shareholders may receive a higher dividend than was determined if the company if the company experiences a larger profit than was expected.

Question 6

Convertible Preference Shares

Answer 6

These shares can be converted into a fixed number of ordinary shares.

Question 7

Redeemable Preference Shares

Answer 7

On a certain future date these shares will be bought back at their par value by the company.

Question 8

Growth shares

Answer 8

Usually young companies that are involved in rapidly expanding activities such as