Free CeMAP 1 Quiz Test Unit 1 Topic 7

Unit 1 Topic 7

1 / 16

Jon purchased a share when the price was very high. He was able to justify this because:

the dividend cover was 0.80.

the dividends had decreased.

the price has increased by more than 25% in two years.

the price earnings ratio was also high.

2 / 16

George decided to invest in cumulative preference shares as he wanted to
ensure:

conversion to ordinary shares

capital growth

guaranteed security

some certainty regarding future dividend payment

3 / 16

Why would an investor be interested in holding warrants issued by a company?

Because, if the value of the connected shares falls, the investor can claim a loss that can be offset against capital gains made elsewhere

Because investors can receive shares without having to make any capital outlay

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

Because investors can receive dividends without having to make any capital outlay

4 / 16

What is the main attraction of direct investment in the ordinary shares of
quoted companies?

Potential capital growth in the medium to long term

Dealing costs are lower than those charged by unit trust fund managers

Dividends are guaranteed to be paid and are tax-efficient for higher rate taxpayers

The selling price of shares is usually the same as the purchase price, thus removing the bid/offer spread

5 / 16

Maks Enterprises intends to raise additional finance by issuing more shares. They are therefore obliged to:

make at least 25% more shares available

delay dividend payments

guarantee no existing shareholder will be adversely affected

make a rights issue

6 / 16

A company is paying a dividend that has a dividend cover of 0.95. This primarily indicates that it:

has reduced its payment compared with last year

will be paid out of retained surpluses

is highly profitable

is quoted on the Alternative Investment Market

7 / 16

If Helen invests in shares, which are quoted in the Alternative Investment
Market, her shares:

will provide a fixed income for the first five years.

have a minimum guaranteed capital value.

must be held by her for at least one year before they can be sold.

are likely to be in new, small companies with growth potential.

8 / 16

A right to buy shares at a specified price by a specified date is a:

warrant

future contract

forward contract

put option

9 / 16

When considering investing in residential property, which one of the
following characteristics is UNTRUE?

Rental income provides a poor hedge against the impact of inflation

There may be periods when suitable tenants are difficult to find

Costs associated with property investment are generally high

The capital value of the property may fall

10 / 16

Which of the following types of share is most commonly a convertible
over recent years?

Redeemable

Preference

Ordinary

Cumulative

11 / 16

If a company distributes 25% of its profits what would the dividend cover
be?

12 / 16

Which one of the following statements concerning preference shares is
FALSE?

Convertible shares are a type of preference share

They normally rank before ordinary shares for dividends

They are a part of the share capital of the company

The dividends are always fixed

13 / 16

The risk of investment fluctuations can be reduced through which feature of the investment process?

Clustering

Diversification

Gearing

Dynamisation

14 / 16

Bank deposit accounts are NOT generally considered to be suitable vehicles for long term investment because they:

are generally only suitable for higher rate tax payers.

pay interest net of lower rate tax.

have proven unattractive when compared with asset-backed investments.

normally have a maximum investment term.

15 / 16

Which one of the following is NOT a feature of ordinary shares? The
shareholder:

is liable for the debts of the company.

ranks after preference shareholders.

has the right to receive a share of the profits.

has the right to vote at annual general meetings.

16 / 16

James has a residential property from which he generates a rental income. When he has to pay tax on the income he can:

defer payment of any tax until the property is sold.

opt to pay a flat rate of tax on the gross income.

offset any income tax due against any fall in the capital value of the property.

deduct certain expenses to reduce the tax due.

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