Deck 9: Listed Securities

Question 1

The proportion of Australians who invest in the stock market is roughly:

A) 20%.
B) 15%.
C) 40%.
D) 3%.

Answer 1

C

Question 2

Dividend imputation allows the investor to:

A) claim the interest on borrowed funds as a tax deduction.
B) indefinitely defer the payment of tax on dividends.
C) pay tax on a company dividend only once.
D) count capital gains tax against imputed net income.

Answer 2

C

Question 3

Which of the following categories holds more shares?

A) Postgraduate.
B) Trade certficate.
C) Undergraduate.
D) Year 12.

Answer 3

A

Question 4

Which of the following is traded on the ASX?

A) Share futures.
B) Shares.
C) Share options.
D) All of the above.

Question 5

An issue of shares that entails existing shareholders receiving new shares for free is called a:

A) warrant.
B) back door issue.
C) rights issue.
D) bonus issue.

Question 6

A(n) is an issue of shares to the investment community for the first time.

A) underwritten corporate float
B) secondary market issue
C) initial public offering
D) share buy back

Question 7

The ASX 200 index:

A) is a weighted average of 200 stock markets from Australia's 200 most important global trading partners.
B) indicates the value today of $200 invested a year ago in the Australian stock market.
C) measures the performance of the top blue- chip companies in Australia over the past 200 years.
D) comprises a basket of companies listed on the Australian Stock Exchange weighted according to their market capitalisation.

Question 8

The advises the Federal government about foreign investment in Australian assets and takeovers of Australian companies.

A) Australian Securities and Investment Commission
B) Foreign Investment Review Board
C) Australian Prudential Regulation Authority
D) Australian Competition and Consumer Commission

Question 9

The variability of returns on an investment over the holding period is known as:

A) undiversifiable risk.
B) diversifiable risk.
C) systematic risk.
D) total risk.

Question 10

Which of the following statements is FALSE?

A) There are many shares traded in Australia that are not listed on the ASX.
B) Debt instruments are not traded on the ASX.
C) The ASX and the Sydney Futures Exchange have not yet merged.
D) Bank shares are traded on the ASX.

Question 11

The Australian sharemarket in 2008 was worth around:

A) $1000 billion.
B) $300 billion.
C) $5 trillion.
D) $1.29 trillion.

Question 12

A university student holds shares in the technology sector in the US stock market. The best index for her to watch to monitor market trends is the:

A) Nasdaq index.
B) Dow Jones index.
C) ASX 200 index.
D) NZSE index.

Question 13

Suppose an instrument switches from an interest- bearing debt security to ordinary shares upon maturity. It is known as a:

A) bonus issue.
B) convertible note.
C) redeemable preference share.
D) converting preference share.

Question 14

Which of the following income groups holds more shares?

A) 60- 80 K.
B) 30- 40 K.
C) 40- 50 K.
D) 100+ K.

Question 15

The trading of shares on the stock market is often done through:

A) investment banks.
B) building societies.
C) pension funds.
D) entrepreneurs.

Question 16

Which of the following is a measure of stock performance?

A) Earnings yield.
B) Dividend yield.
C) Net asset backing.
D) All of the above.

Question 17

If a company wants to list on the ASX, it will need to satisfy which regulatory authority?

A) ASX.
B) APRA.
C) ASIC.
D) All of the above.

Question 18

A share option with an exercise price that is set very low is known as a:

A) REPO.
B) warrant.
C) SPI.
D) LEPO.

Question 19

If a taxpayer buys a bundle of 100 shares at $2 each and then sells 50 of them a year later for $3, they have realised a capital gain of:

A) $100.
B) $300.
C) $50.
D) $200.

Question 20

The 'dividend yield' of a share is defined as:

A) the total yield on the share divided by the dividend.
B) the last sale price of the share divided by its latest reported net profit (expressed as a percentage).
C) the total increase in the share price in the period less dividends paid.
D) the last dividend paid on a share (expressed as a percentage of the last sale price of the share).

Question 21

If the EMH holds, then past share prices cannot be used to predict future share prices.

Question 22

For a company on the ASX, a high price- earnings ratio usually implies that the company is overvalued.

Question 23

Which of the following best describes a firm's 'market capitalisation'?

A) The total assets of the firm.
B) The dollar volume of debt raisings from the market rather than from shareholders.
C) The value of total assets minus the value of total liabilities.
D) The number of ordinary shares on issue multiplied by the current share price.

Question 24

Most statistical studies show that the minimum number of assets needed for an investor to diversify their portfolio is around:

A) 100.
B) 30.
C) 10.
D) 3.

Question 25

The Nikkei Dow stock market index comprises the largest 100 companies listed on the Hong Kong stock exchange.

Question 26

Investors will always prefer investments with higher expected returns.

Question 27

If the risk- free rate is 6%, the market return is 15%, and the beta of a share is 1.15, then the expected return on the share is 10.35%.

Question 28

If a share has a beta of 1.27 this means that it:

A) has a return that is 27% more volatile on average than the market return.
B) is a bad investment.
C) yields a return 1.27 times the market average.
D) all of the above.

Question 29

Which of the following is NOT a characteristic of ordinary shares?

A) They give the holder a residual claim on the net assets of the company.
B) They pay a guaranteed minimum dividend.
C) They are known as 'common stock' in the US.
D) They rank last in the event of winding up the company.

Question 30

A 'franked' dividend is one which is simply assessable as income and attracts the full rate of personal income tax.

Question 31

A beta coefficient of 1.24 indicates that the particular share fluctuates 24% more than the market.

Question 32

Which of the following terms does NOT appear in the CAPM equation?

A) The risk- free rate.
B) The dividend ratio.
C) The expected return on the market portfolio.
D) The beta of the share.

Question 33

The CAPM model:

A) is difficult to calculate.
B) does not provide a quantifiable measure of risk.
C) is not useful for valuing risky assets.
D) none of the above.

Question 34

The All Ordinaries Index is made of _ stocks.

A) 100
B) 500
C) 2280
D) 200

Question 35

Holders of 'participating' preference shares are entitled to:

A) have their share price track the stock market index.
B) receive shares at no extra cost.
C) share in any ordinary dividend that is paid above and beyond their guaranteed minimum dividend.
D) sell their shares back to the company at a future time.

Question 36

Behavioural finance theory says that investors act according to 'bounded rationality'.

Question 37

Exchange- traded funds (ETFs) are:

A) outside the usual APRA regulatory framework.
B) found only in the US, not in Australia.
C) a recent phenomenon in Australia.
D) vehicles that allow investors to trade shares in a particular asset class.

Question 38

The Australian Stock Exchange (ASX) is:

A) a government authority.
B) a listed company.
C) a branch of the New York Stock Exchange.
D) a mutual trust.

Question 39

Which of the following is NOT a 'hybrid' instrument?

A) Perpetual convertible note.
B) Cumulative preference share.
C) Stapled security.
D) None of the above.

Question 40

The risk of a share is often measured by its:

A) P/E ratio.
B) mean.
C) standard deviation.
D) dividend ratio.

Question 41

A shareholder receives a dividend of $5000 and faces a personal tax rate of 40%. If the imputation credit is $2000, then the tax liability is $800.

Question 42

A SPI futures contract gives the holder the right but not the obligation to buy or sell ordinary shares at a known date in the future.

Question 43

The strong form of market efficiency states that prices reflect all the information available in the past history of share prices.

Question 44

Given a simple portfolio of two shares with 50% weighting each whose rates of return are perfectly negatively correlated, there is no diversifiable risk.

Question 45

A low exercise price option has a strike price that is very low compared to the underlying share price at time of issue.

Question 46

Beta risk refers to the diversifiable risk of a share.

Question 47

The 'movement' column of the stock market tables in the financial press shows the number of that share sold yesterday in multiples of 100.

Question 48

The efficient market hypothesis (EMH) was first invented by Keynes in 1936.

Question 49

The CAPM model shows the relationship between the expected return on a share and its beta risk.

Question 50

If a university student makes a capital gain of $1000, it will be taxed at the company tax rate, not the personal tax rate.

Question 51

Noise trading involves markets reacting to news that is not related to the underlying value of the share.

Question 52

Dividend imputation was originally introduced in Australia to encourage greater use of debt financing.

Question 53

The CAPM model has been criticised because it assumes short- selling is allowed.

Question 54

Diversifiable risk is that part of total investment risk that can be eliminated through spreading the mix of assets in a portfolio.

Question 55

Speculative bubbles are always irrational.

Question 56

An underwriter guarantees, for a fee, to buy any shares in an issue that have not been sold to investors.

Question 57

Franking credits can be offset against the Medicare levy.

Question 58

Capital losses can be carried forward into the next tax year.

Question 59

The role of the stock market is to be the secondary market where bonds are traded.

Question 60

Diversifiable risk is sometimes called systematic risk.

Question 61

An investor who receives a partially franked dividend will pay less tax than if they received a fully franked dividend.

Question 62

Define a 'preference' share and distinguish between the various types of preference shares.

Question 63

Describe the structure of the stock exchange in Australia.

Question 64

Outline the different types of instruments traded on the stock exchange.

Question 65

The variance of returns on a share equals the square root of the standard deviation.

Question 66

The term 'representativeness bias' means people tend to assess investments based on commonly held stereotypes.

Question 67

The risk- return schedule slopes upwards to the right.

Question 68

What is diversifiable risk?

Question 69

Franked dividends are paid out of income on which tax has been paid.

Question 70

Discuss the relationship between risk and return on a given investment and its measurement.