Free CeMAP 1 Quiz Test Unit 1 Topic 7

Unit 1 Topic 7

1 / 16

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

Because investors can receive dividends 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, 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

2 / 16

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

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

deduct certain expenses to reduce the tax due.

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

defer payment of any tax until the property is sold.

3 / 16

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

some certainty regarding future dividend payment

guaranteed security

conversion to ordinary shares

capital growth

4 / 16

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

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

Potential capital growth in the medium to long term

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

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

5 / 16

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

the dividends had decreased.

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

the dividend cover was 0.80.

the price earnings ratio was also high.

6 / 16

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

Clustering

Diversification

Dynamisation

Gearing

7 / 16

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

The capital value of the property may fall

Rental income provides a poor hedge against the impact of inflation

Costs associated with property investment are generally high

There may be periods when suitable tenants are difficult to find

8 / 16

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

They normally rank before ordinary shares for dividends

They are a part of the share capital of the company

The dividends are always fixed

Convertible shares are a type of preference share

9 / 16

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

10 / 16

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

is quoted on the Alternative Investment Market

is highly profitable

will be paid out of retained surpluses

has reduced its payment compared with last year

11 / 16

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

have proven unattractive when compared with asset-backed investments.

normally have a maximum investment term.

pay interest net of lower rate tax.

are generally only suitable for higher rate tax payers.

12 / 16

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

has the right to receive a share of the profits.

has the right to vote at annual general meetings.

ranks after preference shareholders.

is liable for the debts of the company.

13 / 16

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

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

have a minimum guaranteed capital value.

will provide a fixed income for the first five years.

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

14 / 16

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

Redeemable

Ordinary

Cumulative

Preference

15 / 16

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

put option

warrant

forward contract

future contract

16 / 16

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

delay dividend payments

make a rights issue

make at least 25% more shares available

guarantee no existing shareholder will be adversely affected

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