Topic 7 Flashcards
If a company distributes 25% of its profits what would the dividend cover be?
A. 4
B. 8
C. 10
D. 25
A. 4
Which one of the following is NOT a feature of ordinary shares? The shareholder:
A. has the right to vote at annual general meetings.
B. has the right to receive a share of the profits.
C. is liable for the debts of the company.
D. ranks after preference shareholders.
C. is liable for the debts of the company.
When considering investing in residential property, which one of the following characteristics is UNTRUE?
A. Costs associated with property investment are generally high
B. Rental income provides a poor hedge against the impact of inflation
C. There may be periods when suitable tenants are difficult to find
D. The capital value of the property may fall
B. Rental income provides a poor hedge against the impact of inflation
Bank deposit accounts are NOT generally considered to be suitable vehicles for long term investment because they:
A. pay interest net of lower rate tax.
B. have proven unattractive when compared with asset-backed investments.
C. are generally only suitable for higher rate taxpayers.
D. normally have a maximum investment term.
B. have proven unattractive when compared with asset-backed investments.
Which of the following types of share is most commonly a convertible over recent years?
A. Cumulative
B. Ordinary
C. Redeemable
D. Preference
D. Preference
Which one of the following statements concerning preference shares is FALSE?
A. They are a part of the share capital of the company
B. They normally rank before ordinary shares for dividends
C. The dividends are always fixed
D. Convertible shares are a type of preference share
C. The dividends are always fixed
What is the main attraction of direct investment in the ordinary shares of quoted companies?
A. Dealing costs are lower than those charged by unit trust fund managers
B. Dividends are guaranteed to be paid and are tax-efficient for higher rate taxpayers
C. Potential capital growth in the medium to long term
D. The selling price of shares is usually the same as the purchase price, thus removing the bid/offer spread
C. Potential capital growth in the medium to long term
Jon purchased a share when the price was very high. He was able to justify this because:
A. the price earnings ratio was also high.
B. the dividend cover was 0.80.
C. the dividends had decreased.
D. the price has increased by more than 25% in two years.
A. the price earnings ratio was also high.
If Helen invests in shares, which are quoted in the Alternative Investment Market, her shares:
A. are likely to be in new, small companies with growth potential.
B. must be held by her for at least one year before they can be sold.
C. have a minimum guaranteed capital value.
D. will provide a fixed income for the first five years.
A. are likely to be in new, small companies with growth potential.
James has a residential property from which he generates a rental income. When he has to pay tax on the income he can:
A. opt to pay a flat rate of tax on the gross income.
B. offset any income tax due against any fall in the capital value of the property.
C. deduct certain expenses to reduce the tax due.
D. defer payment of any tax until the property is sold.
C. deduct certain expenses to reduce the tax due.
Why would an investor be interested in holding warrants issued by a company?
A. Because investors can receive dividends without having to make any capital outlay
B. Because investors can receive shares without having to make any capital outlay
C. Because, if the value of the connected shares falls, the investor can claim a loss that can be offset against capital gains made elsewhere
D. Because, if the price of the shares has increased at the time a warrant is exercisable, the holder will make a profit on their sale
D. Because, if the price of the shares has increased at the time a warrant is exercisable, the holder will make a profit on their sale
Alec Enterprises intends to raise additional finance by issuing more shares. They are therefore obliged to:
A. make a rights issue
B. delay dividend payments
C. guarantee no existing shareholder will be adversely affected
D. make at least 25% more shares available
A. make a rights issue
The risk of investment fluctuations can be reduced through which feature of the investment process?
A. Clustering
B. Dynamisation
C. Diversification
D. Gearing
C. Diversification
Greg decided to invest in cumulative preference shares as he wanted to ensure:
A. guaranteed security
B. conversion to ordinary shares
C. capital growth
D. some certainty regarding future dividend payment
D. some certainty regarding future dividend payment
A right to buy shares at a specified price by a specified date is a:
A. forward contract
B. warrant
C. put option
D. future contract
B. warrant
