Deck 6: Shares

Question 1

The decision of how much money to pay out in dividends is made by the

A) company shareholders.
B) chief executive officer.
C) board of directors.
D) chief financial officer.

Answer 1

C

Question 2

Shares whose prices are expected to remain stable, or even prosper, when economic activity is slowing down are known as

A) reversible shares.
B) cyclical shares.
C) speculative shares.
D) defensive shares.

Answer 2

D

Question 3

Which one of the following statements about ordinary shares is correct?

A) Each share of ordinary share entitles the holder to an equal ownership position and an equal vote in the corporation.
B) Ordinary shares typically provide higher levels of current income than do similar grade corporate bonds.
C) Each share of stock has a specified maturity date.
D) Ordinary shares give shareholders first title to a share of the company's earnings, prior to other corporate obligations.

Answer 3

A

Question 4

Globally, share values declined sharply between

A) 2003 and 2007.
B) 1994 and 1997.
C) 1997 and 2000.
D) 2007 and 2008.

Question 5

If shares earn an average rate of return of 12 %, their value doubles every

A) 6 years.
B) 4 years.
C) 12 years.
D) 8 years.

Question 6

The value that investors place on a share is called its

A) par value.
B) investment value.
C) book value.
D) liquidation value.

Question 7

Aggressive share management

A) involves active share trading in the short- term in the quest for capital gains.
B) concentrates on the long- term growth aspects of a security.
C) is the riskiest of all the investment strategies.
D) concentrates on high dividend yielding shares.

Question 8

Assume the Plum Corporation has two different issues of ordinary shares. One issue carries voting rights, and the other issue does not. In this situation, Plum is said to have issued

A) classified share.
B) buy- back share.
C) treasury share.
D) OTC share.

Question 9

Characteristics of established growth companies include all of the following EXCEPT

A) adequate cash flow to service their debt.
B) steady earnings growth.
C) high dividend payout ratios.
D) high operating margins.

Question 10

An individual share generally provides a

A) lower current income than that available from other types of investments.
B) dividend payment that ensures total protection from purchasing power risk.
C) predictable annual rate of return.
D) refuge from event risk.

Question 11

Reinvested dividends

A) are taxed at the time the dividend is paid.
B) do not increase the value of an investors holdings.
C) are generally sold at a premium over the market price.
D) are taxed when the shares purchased with the reinvested dividend are sold.

Question 12

Share which has been issued and subsequently reacquired by the issuing corporation is called

A) book share.
B) classified share.
C) share repurchase.
D) letter share.

Question 13

Gypsum Corp. pays out 25% of its earnings as dividends. Earnings per share are currently $1.32, book value per share is $16.80, and the market price per share is $22.44. What is the dividend yield?

A) 1.5%
B) 5.9%
C) 2.0%
D) 7.9%

Question 14

The date on which an investor must be a registered shareholder of the firm in order to receive a dividend is called the

A) payment date.
B) date of record.
C) ex- dividend date.
D) purchase date.

Question 15

Ann purchased shares in a German firm at a price per share of 35 euros when the Australian $/euro exchange rate was $1.40. After six months, Ann sold the share for 37 euros when the Australian $/euro exchange rate was $1.45. The share does not pay a dividend. What is Ann's rate of return on this investment?

A) 5.7%.
B) 9.5%.
C) - 5.4%.
D) - 9.5%.

Question 16

To take advantage of the opportunity to acquire additional shares of a company without incurring any brokerage commissions, many investors participate in

A) corporate trusts.
B) dividend reinvestment plans.
C) deferred equity securities.
D) initial public offerings.

Question 17

Dividend yield is calculated by dividing

A) earnings per share by market price per share.
B) the market price of one share by the annual dividend per share.
C) the annual dividend per share by the market price of one share.
D) annual dividend per share by earnings per share.

Question 18

Shares that are readily available to the general public and that are bought and sold on the open market are known as

A) sustained shares.
B) treasury shares.
C) publicly traded issues.
D) split issues.

Question 19

The stock listing for a company shows a P/E of 18, a dividend yield of 2.4% and a closing price of $23.76. What is the amount of dividends per share?

A) $1.32
B) $0.03
C) $0.57
D) $1.03

Question 20

In a rights offering, the

A) amount of debt in the capital structure increases by the amount of the rights offering.
B) total equity remains constant while the number of shares of ordinary share outstanding increases.
C) underwriter offers the investing public a certain number of shares at a certain price.
D) existing shareholders are given the first opportunity to purchase new shares in proportion to their current ownership position.

Question 21

Which of the following periods provided particularly high returns to share investors?

A) 1998.
B) 2009.
C) 1980.
D) 1986.

Question 22

Over the long run, shares have provided investors with annual returns of around

A) 15% to 18%.
B) 8% to 11%.
C) 11% to 15%.
D) 5% to 8%.

Question 23

When a company, working with an underwriter, offers the investing public a certain number of shares at a certain price, the company is making what is known as a

A) stock spin- off.
B) public offering.
C) treasury offering.
D) rights offering.

Question 24

The Limberger Corporation declared a quarterly dividend of $0.10 per share. The ex- dividend date was July 15, the date of record was July 18, and the payment date was July 28. If you had owned 100 shares of the Limberger Corporation and sold them on July 15, then

A) neither you nor the purchaser would collect any money in dividends.
B) the purchaser would collect $10.00 in dividends, and you would not collect any dividends.
C) you would collect $5.00 in dividends, and the purchaser would collect $5.00 in dividends.
D) you would collect $10.00 in dividends, and the purchaser would not collect any dividends.

Question 25

Westlake Industries has total assets of $42.5 million, total debt of $29.3 million, and $2.4 million of 6% preference share outstanding. If the company has 250,000 ordinary shares outstanding, its book value per share would be

A) $52.80.
B) $33.60.
C) $32.33.
D) $43.20.

Question 26

The U.S. share market

A) currently represents about 66% of the world's equity market.
B) is decreasing as a percentage of the world's equity market.
C) lists over 25,000 shares.
D) consistently outperforms the foreign markets once exchange rates are considered.

Question 27

Which category of shares represents the highest level of risk?

A) Large- cap.
B) Small- cap.
C) Blue- chip.
D) Mid- cap.

Question 28

Which strategy applies to investors who fund long- term goals with high- quality shares which they retain for the entire investment period?

A) Buy- and- hold.
B) Quality long- term growth.
C) Current income.
D) Speculation.

Question 29

As a general rule, which one of the following statements concerning the various values of ordinary share is correct?

A) Book values are usually below market values.
B) Par values are usually above book values.
C) Market values are usually below book values.
D) Market values are usually below par values.

Question 30

Since each share of ordinary share represents ownership in a company, ordinary shares are often referred to as

A) illiquid investments.
B) unit- cost securities.
C) fixed- income securities.
D) equity securities.

Question 31

The Jennings Company has 4 million shares outstanding. The share has a par value of $0.10 per share and is currently trading at $18 per share. According to this information, the market capitalisation of Jennings is

A) $40 million.
B) $72 million.
C) $400,000.
D) $7.2 million.

Question 32

When a corporation declares a stock split, it usually does so because

A) there are too many shares outstanding.
B) investors sometimes require nontaxable returns.
C) the share price is too high.
D) the firm's retained earnings are excessive.

Question 33

Which one of the following statements about ordinary shares is true?

A) Ordinary shares generally have a negative rate of return over a ten- year period.
B) The ASX 200 is the best indicator of the overall performance of ordinary shares.
C) Ordinary share can provide attractive capital appreciation opportunities.
D) Dividends generally provide the greatest rate of return on ordinary shares.

Question 34

Which one of the following investment strategies would NOT appeal to an investor who is most concerned with storage of value?

A) Buy- and- hold.
B) Quality long- term growth.
C) High income.
D) Speculation and short- term trading.

Question 35

Typical characteristics of growth shares include

A) strong performance even in market downturns.
B) acquisitions of competing companies.
C) high rates of growth in operations and earnings.
D) rapidly growing dividends.

Question 36

If a corporation declares a 10% stock dividend, then

A) the share price of the stock will most likely remain unchanged.
B) the share price of the stock will most likely decline by about 9%.
C) the share price of the stock will most likely increase by about 10%.
D) each shareholder will get a 10% cash rebate off his or her next round lot purchase of the stock.

Question 37

Which one of the following is a characteristic of blue chip shares?

A) Annual dividends of more than $5 per share.
B) Guaranteed minimum annual dividend of $2 a share.
C) Long and stable dividend and earnings records.
D) Relatively high risk exposure.

Question 38

A&B Research Corp. specialises in the development of new products. These products oftentimes are complete failures in the marketplace. However, if a product is successful, it is normally a phenomenal success. The shares of A&B Research is classified as a

A) defensive share.
B) income share.
C) cyclical share.
D) speculative share.

Question 39

Companies with strong earnings but limited growth opportunities

A) do not generally pay any dividends.
B) are speculative shares.
C) are called blue- chip shares.
D) generally pay high dividends.

Question 40

The value that represents the amount of shareholders' equity in a firm is called the

A) liquidation value.
B) par value.
C) book value.
D) market value.

Question 41

The par or stated value of ordinary shares is important for

A) helping the market determine the trading price of the share.
B) accounting purposes only.
C) helping the board of directors determine the dividend payout.
D) helping the investor determine the share's intrinsic value.

Question 42

A bear market is described as a share market decline of 25% or more.

Question 43

Share purchase is a means of increasing the number of shares outstanding.

Question 44

A company's board of directors must declare a dividend if the firm is profitable.

Question 45

The ordinary share investment strategy that is the most basic strategy and is popular with conservative, quality- conscious individuals looking for competitive returns over the long run is the

A) current income strategy.
B) speculation and short- term trading strategy.
C) growth strategy.
D) buy- and- hold strategy.

Question 46

The ordinary shares of the Owl Company have a book value of $10.80 and a market value of $14.30. The company pays $0.14 in dividends each quarter. What is the dividend yield?

A) 1.0%
B) 5.2%
C) 1.3%
D) 3.9%

Question 47

Income shares are well suited for retirees because

A) dividends tend to increase over time.
B) dividend yields tend to exceed bond yields.
C) dividend income is tax- free.
D) the capital gains are predictable.

Question 48

One characteristic of mid- cap shares is that they

A) are generally new firms with high growth potential.
B) are traded primarily through pink sheet bids.
C) are fairly good- sized companies that offer attractive return opportunities.
D) tend to be highly volatile.

Question 49

Another term for the stated value or face value of a share is its

A) liquidation value.
B) book value.
C) par value.
D) proxy value.

Question 50

Which of the following will tend to increase transaction costs?

A) Buying or selling shares through an online broker.
B) Buying or selling more than 1000 shares in a single trade.
C) Buying or selling fewer than 100 shares at a time.
D) Buying or selling at times when volume is high and the exchanges are busy.

Question 51

Shares related to computers and the Internet are classified as

A) tech shares.
B) blue- chip shares.
C) income shares.
D) cyclical shares.

Question 52

Stock splits may be used when a firm, believing the price of its share is too high, wants to enhance the share's trading appeal.

Question 53

The total- return approach concentrates solely on capital gains over the long- term.

Question 54

The total value of an investor's holdings in a company will not change as a direct result of a stock split.

Question 55

Investors seeking current income that tends to increase over time should purchase

A) speculative shares.
B) income shares.
C) growth shares.
D) cyclical shares.

Question 56

Different classes of share generally have either different voting rights or different dividends.

Question 57

The investment value for a publicly traded share can readily be found in the financial section of the newspaper or on the Internet.

Question 58

Every shareholder is a part owner of the firm and, as such, has a direct claim on a portion of the firm's assets.

Question 59

Because ordinary shareholders are entitled to the profits that remain after all of a corporation's other obligations have been met, ordinary shareholders are known as

A) debt owners.
B) residual owners.
C) temporary owners.
D) owners of last resort.

Question 60

Mid- cap shares are generally classified as those with a market capitalisation between $1 and $4 billion.

Question 61

If a firm has a 2 million shares outstanding and its shares trades at $25, the company has a market capitalisation of $50,000,000.

Question 62

With respect to dividend payments on shares, the date of record is the date on which the payment is actually paid.

Question 63

Transaction costs can significantly reduce the rate of return on share investments.

Question 64

A share's market value would normally be higher than it's book value.

Question 65

An increase in the dollar relative to the euro has a negative effect on the returns of Australian investors who invest in European firms.

Question 66

A market correction is defined as a share market decline of 10% or more.

Question 67

Shares of publicly traded company can be issued either through a public offering or a rights offering.

Question 68

High dividend yields are typical of rapidly growing companies.

Question 69

Shareholders who sell their share on or after the ex- dividend date, but before the date of record, will still receive the declared dividend.

Question 70

There is a stronger tendency for the share market to increase in value rather than decrease in value over time.

Question 71

Companies typically issue new shares through an initial public offering (IPO).

Question 72

The most common reason for an investor to adopt the quality long- term growth investment strategy is for long- term accumulation of capital.

Question 73

While many shares increase in value over the long run, most of the return on shares comes from dividends.

Question 74

Investors should never pay more than par value for a share.

Question 75

The rate of return on a foreign investment is affected by changes in the exchange rates.

Question 76

Over the long term, the capital gain on most shares will exceed the dividend income.

Question 77

Firms tend to repurchase their outstanding shares when they view the shares as undervalued.

Question 78

An increase in the value of the dollar relative to the yen has a positive effect on the returns of Australian investors who invest in shares of Japanese firms.

Question 79

Shares which perform well in a faltering economy are called defensive shares.

Question 80

Stock dividends do not increase the value of a shareholder's position.