Topic 7 Flashcards
Other direct investments
Direct investment in shares is low risk for individual investors because, over the long term, equity markets have outpaced inflation.
True or false?
False.
Direct investment in shares is regarded as high risk because if the company fails, the entire investment is at risk.
It is difficult for most investors to spread the risk effectively between a large number of companies and sectors.
A share with a low P/E ratio is likely to be more expensive than other shares in the same market sector.
True or false?
False. A low P/E ratio indicates that the share is not in high demand and it is likely to be less expensive than other shares.
If a company distributes 25 per cent of its profits in the form of dividends to its shareholders, what would the dividend cover be?
a) 4.
b) 8.
c) 10.
d) 25.
a) 4.
The profit is four times the dividend paid out.
Commercial paper is generally issued for a term of between three and six months.
True or false?
False. Commercial paper is generally issued for between five and 45 days with 30 to 35 days being typical.
Karen is a higher-rate taxpayer who owns a buy-to-let flat. What is the position with tax relief on her mortgage? She will:
a) receive tax relief at her marginal income tax rate.
b) receive higher-rate tax relief.
c) not qualify for any tax relief.
d) receive a basic-rate income tax credit.
d) receive a basic-rate income tax credit.
A share’s price/earnings ratio is:
a) the company’s net profit divided by the number of shares.
b) the number of times the dividend is covered by the company’s profits.
c) the share price divided by the earnings per share.
d) the share’s dividend as a percentage of the share price.
c) the share price divided by the earnings per share.
Certificates of deposit:
a) are bearer securities.
b) pay interest monthly.
c) allow penalty-free access at any time.
d) have a minimum 12-month term.
a) are bearer securities.
A preference share:
a) receives interest payments rather than dividends.
b) always carries voting rights.
c) ranks ahead of ordinary shares for repayment if the company is wound up.
d) is guaranteed to receive a dividend every year.
c) ranks ahead of ordinary shares for repayment if the company is wound up.
Buy-to-let property has the advantage of liquidity.
a) True
b) False
b) False: Property is an illiquid asset.
The FTSE 350 Index includes companies listed on the London Stock Exchange. It comprises:
a) the largest 350 companies by capitalisation.
b) the largest 350 companies by capitalisation outside the FTSE 100.
c) the largest 350 companies by capitalisation outside the FTSE 100 and 250 indices.
d) 350 smaller companies who do not meet the AIM criteria.
a) the largest 350 companies by capitalisation.
Today is the ex-dividend date for Acme Ltd shares. The share price is most likely to:
a) become more volatile.
b) increase slightly.
c) remain stable.
d) decrease slightly.
d) decrease slightly.
A share price typically decreases roughly by the value of the dividend when it reaches its ex-dividend date.
Bow Ltd has just issued three free shares for every one share a shareholder owns. This is referred to as a:
a) scrip issue.
b) proportional share issue.
c) rights issue.
d) dividend share issue.
a) scrip issue.
Market capitalisation is a key factor when analysing shares. It represents the:
a) annual profit figure shown in the company’s last annual accounts.
b) current share value multiplied by the number of shares issued.
c) value of the company’s assets and reserves.
d) number of shares the company has issued.
b) current share value multiplied by the number of shares issued.
What percentage of a company’s share capital must be in public hands for its shares to have a full listing on the main London Stock Exchange?
a) 10%.
b) 25%.
c) 33%.
d) 49%.
b) 25%.
The primary market is where investors buy and sell existing securities.
True or False?
False.
