Question

Which of the following is an incorrect statement? a. LIBOR is a reference rate for a wide range of international transactions b. Typically, corporate bonds pay semi-annual coupons over their lives c. Commercial papers are short-term unsecured debt securities d. Investors like to invest in bonds as generally their coupons increase when interest rates increase e. Limited liability means the most that shareholders can lose when a corporation fails is their original investment

Which of the following is an incorrect statement? a. Preferred shares have features similar to both bonds and equity b. Preferred shares rank behind bonds in terms of claims on company assets in case of bankruptcy c. For all preference shares, a firm has a contractual obligation to pay fixed dividends every period d. An issuing firm can redeem preferred shares from investors e. Preferred shares can pay cumulative or non-cumulative dividends

Which of the following is a correct statement? a. A placement raises extra capital but has the largest potential for ownership dilution b. A rights issue raises capital from existing bondholders and shareholders c. A dividend reinvestment plan is regarded as a short-term strategy for raising capital quickly d. A rights issue may be renounceable, whereby a shareholder can sell the right to the issuing company e. Placement is attractive to companies as all shareholders partake in the placement

Which of the following is a correct statement? a. A closed-end fund is so-called because once investors have bought its shares, they have to wait until the fund matures to be able to sell their shares and get their money back. b. A growth-managed fund generally minimizes allocations to money market securities and bonds. c. If large numbers of investors want their money back from an ETF, the fund must sell securities to meet redemptions. d. For unlisted funds, it is often difficult and costly for investors to switch their investments with the fund manager. e. Ongoing management fees for managed funds are usually in the order of 11% to 12.5%.

Which of the following about the industry life cycle is correct? a. One limitation of the life cycle approach is that it focuses on sales rather than share prices. b. At the consolidation stage, a company’s products remain untested. c. At the expansion stage, investors can predict more easily the company’s market share. d. Typically, an investor at maturity stage of a company’s life cycle stands to earn the highest return. e. Most firms experience rapid growth for a long period compared to other stages.

Answer 1

Which of the following is an incorrect statement?	Notes
a. LIBOR is a reference rate for a wide range of international transactions
b. Typically, corporate bonds pay semi-annual coupons over their lives
c. Commercial papers are short-term unsecured debt securities
d. Investors like to invest in bonds as generally their coupons increase when interest rates increase	Incorrect Statement. Coupons do not change over time. Bond price changes inversely as interest rates increase or decrease
e. Limited liability means the most that shareholders can lose when a corporation fails is their original investment
Which of the following is an incorrect statement?	Notes
a. Preferred shares have features similar to both bonds and equity
b. Preferred shares rank behind bonds in terms of claims on company assets in case of bankruptcy
c. For all preference shares, a firm has a contractual obligation to pay fixed dividends every period
d. An issuing firm can redeem preferred shares from investors	Partially incorrect - Preferred shares can be redeemable and/or convertible as decided at the time of issue. Only a Redeemable share can be redeemed.
e. Preferred shares can pay cumulative or non-cumulative dividends	Incorrect Statement. Preferred shares are wither cumulative or non-cumulative and are not both, A non-cumulative preferred stock will get dividend YoY and of missed on any year its not claimable. Though for Cumulative pref Stock, any missed dividend is claimable in future.
Which of the following is a correct statement?	Notes
a. A placement raises extra capital but has the largest potential for ownership dilution	Correct. Placement offers company shares to investors in general and not limited to shareholders.
b. A rights issue raises capital from existing bondholders and shareholders	Incorrect. Its from the shareholders
c. A dividend reinvestment plan is regarded as a short-term strategy for raising capital quickly	Incorrect. DRIP allows company to get additional retained earnings for business needs, and reduces fund raising cost. Though it's usually a long term strategy.
d. A rights issue may be renounceable, whereby a shareholder can sell the right to the issuing company	Incorrect. Rights can not be sold back to issuing company, though shareholders can sell these rights in open market.
e. Placement is attractive to companies as all shareholders partake in the placement	Incorrect. Placements are usually not directed to current shareholders
Which of the following is a correct statement?	Notes
a. A closed-end fund is so-called because once investors have bought its shares, they have to wait until the fund matures to be able to sell their shares and get their money back.	Incorrect. Its called closed-ended, as the fund accumulate dis fixed and do not change.
b. A growth-managed fund generally minimizes allocations to money market securities and bonds.	Correct. Money Market Securities and Bonds pay a fixed rate and no scope for growth. So Growth managed funds have lower proportion of these in their portfolio.
c. If large numbers of investors want their money back from an ETF, the fund must sell securities to meet redemptions.	Correct. ETF may need to sell the underlying securities in case of large sellout by investors
d. For unlisted funds, it is often difficult and costly for investors to switch their investments with the fund manager.	Correct. Unlisted funds are not traded so frequently and are mostly held till maturity of underlying project. Its difficult to sell and if do sold, it might be at a discount.
e. Ongoing management fees for managed funds are usually in the order of 11% to 12.5%.	Incorrect. Its not so high. Its like 0.5% of AUM
Which of the following about the industry life cycle is correct?	Notes
a. One limitation of the life cycle approach is that it focuses on sales rather than share prices.	Incorrect. Share prices might not be as relevant determinant of life stage
b. At the consolidation stage, a company’s products remain untested.	Incorrect. Product is now tried and tested and kind of commoditized
c. At the expansion stage, investors can predict more easily the company’s market share.	Incorrect. Market share is volatile in this stage
d. Typically, an investor at maturity stage of a company’s life cycle stands to earn the highest return.	Incorrect. At maturity, company is stable and moving mostly as expected. So returns are usually lower here. In early stages, returns are high
e. Most firms experience rapid growth for a long period compared to other stages.	Correct. Any industry will have more companies that are in the early stages as compared to mature stages.