Explanations for 80 Questions

8/14/2019 Explanations for 80 Questions

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DEAL IT

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CFAS Project Blink-O Questions

NTA stands for ___?

a) Net Tangible Assetsb) Net Taxable Assetsc) Net Transferred Assets

It is also known as net asset value or book value. To calculate, take total assets of acompany, minus intangible assets and all liabilities. An example of intangible asset isgoodwill.

Share placement is the issuing of new shares to existing shareholders.

a) Trueb) False

Share placement refers to the issuing of new shares to non-existing shareholders. Rightsissue refers to the issuing of new share to existing shareholders.

Which of the following is not considered equity?

a) Share capitalb) Insurancec) Retained earnings

Equity refers to the amount of funds contributed by the owners of the company or any othersecurity representing an ownership interest. Insurance is a contract between an individualwho receives financial protection and an insurance company which reimburse againstcustomers losses Therefore, insurance is not equity.

When market interest rate goes ___, the bond price goes___.

a) Up, Downb) Up, Upc) Up, Unchanged

The relationship between the market interest rate and the bond price are inversed.

According to Singapore law, a Singapore company cannot hold its own shares.

a) Trueb) False

Although a listed company can buy their own shares from the stock market during a Share-Buyback, it cannot hold its own shares. They would have to cancel the shares bought.

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In the event of company liquidation, _________ are being paid first, followed by ________,and lastly _______.

a) Creditors, preference shareholders, ordinary shareholders

b) Ordinary shareholders, creditors, preference shareholdersc) Preference shareholders, ordinary shareholders, creditors

In terms of return of money invested, creditors are rank ahead of shareholders andpreference shareholder rank ahead of ordinary shareholders. Therefore, ordinaryshareholders carry the highest risk.

The dividend paid on preference shareholders and ordinary shareholders are _______&________ respectively.

a) Fixed, Uncertain

b) Uncertain, Fixedc) Uncertain, Do not have dividend

Preference dividend must be fully paid before ordinary dividend can be declared. Thepayment of ordinary dividend is at discretion of companys directors. If preference dividendnot paid, investors may take legal action to recover money invested.

Which are the 2 types of takeover offer?

a) Voluntary offer and Public offerb) Mandatory offer and Public offer

c) Voluntary offer and Mandatory offer

Mandatory offer refers to the takeover offer made by offeror who has purchased shares inthe target company. Takeover offer that is not mandatory is voluntary.

Bonds are usually listed to widen the pool of potential investors.

a) Trueb) False

Bonds are usually listed to widen the pool of potential investors. However, it does not mean

it is actively traded.

Which is a mode of payment for a takeover?

a) Cashb) Offeror Companys sharesc) Both are possible

It can be Companys shares if it is listed, or cash, or a combination of cash and shares.

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Investors are interested in Loan Stocks as itgives______ _______.

a) Monthly Dividendb) Regular Incomec) Voting Rights

Loan stocks are when Common or Preferred stock shares are being used as collateral tosecure a loan from another party. The loan will earn fixed interest rate therefore, it hasregular income.

Which of the following rank first to claim principal in case of liquidation?

a) Bankb) Ordinary Shareholdersc) Creditors

In terms of return of money invested, creditors are rank ahead of shareholders and bankwill rank ahead of ordinary shareholders.

Which of the following is issued with no consideration of cancelling?

a) Redeemable Preference Sharesb) Ordinary Sharesc) Loan Stocks

Issued share capital (ordinary shares) is basic capitalization of a company. Once issued,they remain on the companys balance sheet permanently. Companies do not issueOrdinary Shares with intention to cancel them.

Under which market will a listed company intensify the issuing of ordinary shares?

a) Bullishb) No Movementc) Bear

Bullish markets are characterized by investor confidence, optimism and expectations thatstrong results will continue. Therefore, more investors would be willing to participate in thestock market.

Why does company choose to go public?

a) Get Recognitionb) Promote Products & Servicesc) Raise Funds

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When a company "goes public," it is the first time the general public has the ability to buytheir shares. As there is no limit to the maximum number of shareholders in a company, alarge amount of funds can be raised to expand the business.

Wealthy Individual investors in venture capital are known as __________.

a) Business Angelsb) Rich Peoplec) Agents

Business angels are wealthy individuals who provide funding to a Venture capital. Privateequity funds provided by them may be used in Venture Capital financing.

Which of the following does a venture capitalist looks for in an investment?

a) Probability of gain/lossb) Unique selling point of a productc) All of the above

Each venture capital fund has its own criteria for assessing the risks & rewards of aninvestment. It depends on Venture Capitalists management teams assessment of possiblegain/loss. They often prefer a product with some unique selling point and developmentpotential. However, the most important factor is the integrity of the entrepreneur.

How many types of listing quantitative criteria are there on SGX Main Board used to assess

a company?a) 2b) 5c) 3

Qualitative Criteria 1 for SGX Main Board requires the company applying to be listed tohave a consolidated (group) pre-tax profit of at least 7.5 million for the last 3 yearsconsecutively with at least 1 million in each of those 3 years.Qualitative Criteria 2 for SGX Main Board requires the company applying to be listed tohave a cumulative consolidated pre-tax profit of at least 10 million for the last 1 or 2 years.Qualitative Criteria 3 for SGX Main Board requires the company applying to be listed to

have a market capitalization of at least 80 million (issue price * post-invitation issued sharecapital) and a 3 year record in research and development (R&D).

What is the objective of foreign company seeking overseas listing?

a) IPO(Initial Public Offering) pricing more attractiveb) Large part of business is located in the local countryc) Form of marketing to promote companys shares

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IPO pricing will be higher because of the higher demand by strong investors whoappreciates the business better. In addition, there will be strong financial institutions tomanage IPO. If a large part of business is located in the foreign country, company can raiseforeign currency funds to meet its operational needs while minimizing its forex exposure.

What will happen if a bond certificate is lost?

a) The bond will still belong to the original owner.b) Finders keepers- the bond will belong to whoever picks it up.c) The bond will immediately be invalid.

Unlike loan stocks certificate which is registered in the name if the loan stock holder, thebond certificate is in bearer form. Whoever who holds the bond certificate, is deemed to be

the owner.

What does IPO stands for?

a) Irredeemable Preference Ownershipb) Initial Private Offeringc) Initial Public Offering

Initial Public Offering (IPO) is a process by which a company first obtains a listing of itsshares on a recognized stock exchange such as Singapore Exchange (SGX). Both localand foreign companies can seek a listing provided that they meet the Singapore Exchange

listing requirements as set out in its listing Manual.

Which of the following is not a method of raising capital?

a) Public Offerb) Share Placementc) Bonus Issue

Bonus Issue is the issues of new shares by the company to the shareholders in proportionto their existing shareholdings. They are considered free as existing shareholders do nothave to pay for the new shares.

The __________ undertakes to underwrite issue of shares; in other words; in the event ofan under subscription, they will buy the remaining shares.

a) Underwriterb) Issue Managerc) Placement Agent

Underwriters will receive underwriting fees from their issuing clients. They usually also earnprofits when selling the underwritten shares to investors. By underwriting the shares, they

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hold responsibility.

Qualitative Criteria 1 for SGX Main Board requires the company applying to be listed tohave a consolidated (group) pre-tax profit of at least ________ million for the last 3 yearsconsecutively with at least ________ million in each of those 3 years.

a) SGD 7.5 million; SGD 1 millionb) SGD 6 million; SGD 0.8 millionc) SGD 10 million; SGD 1.5 million

In additional to this, the operating track record should be achieved by substantially samemanagement, with company in substantially same business.

Qualitative Criteria 2 for SGX Main Board requires the company applying to be listed tohave a cumulative consolidated pre-tax profit of at least ______ for the last 1 or 2 years.

a) SGD 10 millionb) SGD 12 millionc) SGD 7 million

In additional to this, the operating track record should be achieved by substantially samemanagement, with company in substantially same business. This applies to listing companywhich is a highly profitable business but with a short operating history.

Qualitative Criteria 3 for SGX Main Board requires the company applying to be listed tohave a market capitalization of at least ______ (issue price * post-invitation issued sharecapital) and a 3 year record in research and development (R&D).

a) SGD 80 millionb) SGD 90 millionc) SGD 100 million

This caters for listing of businesses that have committed a lot of money in projects that takea long time to turn a profit. E.g. Life Sciences. Profit record is not a requirement. Samebusiness and management are also not required.

Rights Issue is being offered to ________.

a) New Shareholdersb) Existing Shareholdersc) None of the above

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Rights issue refers to offering of common stock to existing shareholders who holdsubscription rights that entitle them to buy new issued shares at a discount from the marketprice.

When new ordinary shares are issued, the shareholdings of existing shareholders will bediluted.

a) Trueb) False

For example, Joe initially owns 25% of the company shares by owning 25,000 shares out ofthe company 100,000 shares. If the company decides to issue 50,000 new shares, Joes

would now only hold 16 % (25,000 shares out of 150,000 shares) of the company sharesprovided that he did not subscribe for the new shares.

What is a bond rating?

a) Rating Agencys opinion on the Issuers market position.b) Rating Agencys opinion on the price of bond.c) Rating Agencys opinion of Issuers ability to repay.

A grade is given to bonds to indicate their credit quality. Examples of rating agencies areStandard & Poor's and Moody's. They provide these evaluations of a bond issuer's financialstrength, or its the ability to pay a bond's principal and interest on time.

What is true about a Share-Buy Back?

a) It occurs when a listed company has surplus funds and difficulty earning adequatereturn on its equity.

b) It is costly and time-consuming.c) It affects a large portion of a companys ordinary share capital.

Share-Buyback simply means a listed company buys own shares from the stock market. Itis simple and quick and only affects a small portion of a companys ordinary share capital.After using their surplus funds of the company to buys own shares from the market, those

shares have to be cancelled because, by law, a Singapore company cannot hold its ownshares. The Return on Equity would increase (ROE) due to the smaller number of ordinaryshares.

Venture capitalist faces high risks due to the expectation of gaining high returns above theirinvestment.

a) Trueb) False

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Generally, the higher the risk, the higher the expected return.

What does TEP stands for?

a) Theoretical ex-rights priceb) Tentative ex-rights pricec) Taxed ex-rights price

Theoretical ex-rights price (TEP) is a calculated price for a company's shares price afterissuing new rights-shares with the assumption that all new-issued shares are taken up bythe existing shareholders. The result would be that the price will be lower than the oldshares were but higher than the new issued shares.

What is the main disadvantage of shares cancellation?

a) Affects key ordinary shareholdersb) Time-consuming and costlyc) Increases capital

Capital reduction exercise is not an usual occurrence during a companys lifetime. It ismostly proposed in connection with debt restructuring scheme, when company facesserious financial trouble. It affects all ordinary shareholders & issued capital .In addition, it iscostly & time-consuming.

What is a feature of a redeemable convertible preference share?

a) Capital gainb) Permanent capital of the companyc) Converting preference shares into ordinary shares

Such preference shares will not be redeemed by the issuer. During the life of the issue,investors can convert the preference shares into ordinary shares of the issuer corporation.It is reflected as equity on issuers balance sheet.

Redeemable preference shares are treated as ____ on the balance sheet when issued.

a) Assetb) Debtc) Equity

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Redeemable preference shares are redeemed by the issuer (the Company) at the end ofthe life of the issue. When redeemed, issuer pays investors for amount invested &preference shares are cancelled. It is similar to debt issue in nature. Therefore is treatedlike debt on balance sheet.

Rights issue of 1: 4 means ___________.

a) 4 new shares for every 1 ordinary share heldb) 1 new share for every 4 ordinary shares heldc) 1 preference share for 4 ordinary shares

Rights issue refers to offering of common stock to existing shareholders who holdsubscription rights that entitle them to buy new issued shares at a discount from the marketprice.

What is the minimum shareholding spread criteria for SGX-SESDAQ?

a) 25% of post-invitation share capital in the hands of 200 shareholdersb) 500,000 shares in the hands of 500 shareholdersc) 500,000 shares in the hands of 200 shareholders

The minimum shareholding spread criteria for SGX-SESDAQ is 15% of post-invitationshare capital or 500,000 shares in the hands of 500 shareholders, whichever is greater500, 000 shares in the hands of 200 shareholders is for Catalist.

Face value of a bond is also known as par value.

a) Trueb) False

Bond face value refers to the amount paid to the bond holder at maturity .Bonds generallyhas a par value of $1,000

When most shares in the stock market is moving in an upward trend, it is deemed that thestock market is ______.

a) Bearishb) Bullish

Bullish markets are characterized by investor confidence, optimism and expectations thatstrong results will continue. In bearish market condition, prices of securities are falling and

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there is a widespread pessimism by investors.

SGX stands for____.

a) Securities Government Exchange

b) Singapore Exchangec) Singapore Good Exchange

Singapore Exchange Limited is the stock exchange in Singapore which was formed onDecember 1, 1990 from the merger of two financial institutions- the Stock Exchange ofSingapore (SES) and Singapore International Monetary Exchange (SIMEX).

Ordinary share would give investors ______.

a) Interestb) Capital Gainc) None of the above

Ordinary share do not receive interest. They receive dividends instead. Capital gain refersto an increase in the value of a capital asset (shares) that gives a higher value than thepurchased price. Capital gain may be either short tern (a year or less) or long tern (morethan a year).

Company share price is affected by_________.

a) Government Regulationsb) Economyc) Companys Management Teamd) All of the above

A share price is the price of a single share of a number of saleable stocks of the companyprice is calculated by dividing the market capitalization by the total number of shares. Theshare price is directly related to the earnings and dividends of the company in the longterm.

An investor would need to hold at least ____% of shares of the company in order to gain

majority control over the business.

a) 50b) 51c) 70

A person who owns more than 50% of the outstanding shares of a company has majoritycontrol.

At which stage of a company would Venture Capitalists be willing to invest in?

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a) Starting up of businessb) Growing of businessc) No more expansions but is earning profit

In the stage of growing of business, business may have breakeven or is already profitable.

Additional funds are needed to allow company to achieve full potential. For example, toincrease production capacity or expand geographically.

Some investors prefer to hold preference shares over ordinary shares as it has/have_________.

a) Lower risk of losing invested fundsb) Regular income from Periodic Fixed Dividends Payout regardless whether the

company is profitingc) All of the above

Preference dividend must be fully paid before ordinary dividend can be declared. Ifpreference dividend not paid, investors may take legal action to recover money invested.

The higher the risk, the lower the expected return.

a) True

b) False

The higher the risk, the higher the expected return. This is to compensate the investor.

Lifespan of a bond is also known as tenor.

a) Trueb) False

Tenor is the amount of time left for the repayment of a loan or contract. It is sometimesused interchangeably with "maturity".

Who is the supervisor for Post-IPO for Catalist?

a) Sponsorsb) Singapore Exchange (SGX)c) Board of Directors

Singapore Exchange is the supervisor for Main Board. Sponsors give advice to listedcompanies on rule compliance, reviewing their public documents and report to SGX when

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necessary.

The general mandate, given by the shareholders, entitled the directors to issue shares atthe ______.

a) Directors agreementb) Directors discretionc) Directors free-will

This process is usually done in companys Annual General Meeting. (AGM)

SGX is concerned that with a companys change in management and shareholding controlwill affect _____.

a) Reception of issueb) Public perceptionc) All of the above

SGX vision is Building an enduring marketplace. Their mission is to offer highly trustedsecurities and derivatives marketplace for capital raising, risk transfer, trading, clearing andsettlement and to serve our stakeholder.

Bonus Questions

A companys financial situation is considered healthy when _____.

a) Current Assets > Current Liabilitiesb) Current Liabilities > Current Assetsc) Shareholders equity < Current Liabilities

Current Asset = What you ownCurrent Liabilities = What you oweTherefore is healthy when you own more than what you owe.

Which of the following is a feature of Moratorium on Disposal of Shares?

a) Free transfer of shares between shareholdersb) 1st right of refusal to buy sharesc) None of the above

It is to prevent shareholders from selling out overnight as such must offer the remainingshareholders to buy the shares first.

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A companys profitability and growth potential is reflected in its _____.

a) Dividend Payoutb) Profit and Loss Statementc) Share price

A companys profit or loss amount within the year is recorded down in the profit and lossstatement. If the company is profitable, means it has growth potential.

Which of the following reserves can be utilized for bonus issue?

a) Revenue Reservesb) Capital Reservesc) All of the above

Revenue Reserves is the retained earnings or unappropriated profit. Capital Reserves isthe surplus on revaluation of fixed assets. Reserves not equal to shares. Therefore it canbe utilized.

When will a company prefers share placements to rights issue?

a) Fund requirements are smallb) Controlling shareholders not willing to dilute shareholdingc) Bear market

By issuing rights issue, if shareholders unwilling or incapable to purchase the shares, theirshareholding will be diluted as percentage shareholding in the company will decrease.However by doing shares placement, the shareholders can cap on the aggregate number

of shares that can be issued which helps them to not dilute their shareholding.

If there is a change in a companys management recently, the company should _____ toascertain managements ability.

a) Increase share priceb) Provide evidence of managements abilityc) Increase dividends

It is important as it helps to assure the investors that the company will continue to be wellmanaged.

Which of the following is Venture Capitalist Company?

a) Dubai International Capitalb) Navis Capital Partnersc) Walden International

Walden International invests in companies that have lack of capital but with good potentialgrowth and hope to reap above average return on their investment.

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SESDAQ is established in ___.

a) 1987b) 1971c) 1969

It was initially introduced for small & medium enterprises (SMEs) which conduct high riskbusinesses to grow the business.

Which of the following way(s) are used to reduce absolute share price?

a) IPOb) Bonus Issuec) All of the above

By issuing bonus issue, the number of shares shareholders hold will increasewhereas the net shareholders funds will remain the same as issuing of bonus shares isutilizing the reserves of the company. Thus, the absolute share price will decrease. (NTAper share = Net shareholders funds / Number of shares)

What are Dragon Bonds?

a) Any currency listed on at least 2 Dragon exchanges. (HK, Singapore or Taiwan.b) RMB and HKD listed on at least 2 Dragon exchanges. (HK, Singapore or Taiwan)c) RMB listed on at least 2 Dragon exchanges. (HK, Singapore or Taiwan)

These bonds are traded during Asian time zone.

Zero-Coupon Bonds characteristics are

a) Annual coupon repayments, issued at a deep discount and redeemed at par.b) No coupon during life issued, at deep discount from face value and redeemed at par.c) No coupon during the 1st year of issue, issued at discount from face value and

redeemed at premium.

Attract investors that are interested in having the discount at the start for buying the bondand realized earnings at the end of maturity.

Who are the players in the bond market?

a) Issuer, Intermediaries and Investorsb) Underwriters, Intermediaries and Investorsc) Lenders and Borrowers

Issuer is the borrowing corporation which requires funds and wants to borrow money fromthe investors who are cash-rich individuals or corporations by issuing bonds. Intermediariesare the financial institutions which help the issuer to find suitable investors and provide thebuy-sell quote to the issuer and investors. Issuer will repay principal on maturity; pays

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interest periodically to the investors through the intermediaries.

Arrange the Bond Rating from the highest quality to the lowest quality.

a) Aa

b) Aaac) Bbbd) A Ans: b, a, d, c

A has the highest quality by a by B and then b. Thus the one with the most A and a has thehighest quality followed by the B and b.

When Required Rate of Return ( R ) is greater than Coupon Rate ( C ), the bond price willbe _____ 100%, this means that the bonds are selling at a _____ from face value.

a) Smaller than; Discountb) Greater than; Premiumc) Equal to; Par

When R is greater than C; it means that the investors did not expect the coupon payment tobe lower and thus are not willing to pay the risk value. When demand drops, the price willdrop and will sell at a cheaper price.Interest rates on the loan stock and convertible unsecured loan stocks are _____ straightloan stocks because of sweetener (reflecting value of conversion rights).

a) Higher thanb) Equal to

c) Lower than

Sweetener refers to the warrant in the package as this equity feature provides speculativeinterest in the issuers shares.

Forms of consideration for a takeover are,

a) Cash, Offeror companys shares and combination of cash and sharesb) Cash, Offeror companys shares, Bonds and combination of cash and shares.c) Cash, Offer companys shares, Bonds and combination of cash, shares and bonds

Concert-Party refers to

a) Immediate family, siblings children and parents siblingsb) Immediate family, siblings children, parents siblings and friendsc) Immediate family and their close friends, siblings children and parents siblings

Concert Party refers to parties who cooperate to obtain or consolidate effective control oftarget company.

Which of the following is not the main type of takeover documents?

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a) Offer Documentb) Offeree Circularc) Prospectus

Offer Document emphasise attraction or merit of Takeover Offer. Offeree Circular states

terms, merit &/or demerit of Takeover Offer analysed for the benefit of shareholders.Whereas Prospectus states nothing about the merit or demerit about Takeover Offer, thusProspectus is not a main type of takeover document.

Which of the following are NOT tactics to defend unwanted takeover offer?

a) Obtaining a Court Orderb) Release positive new information such as strategic business plansc) Be critical of the terms of offer

By obtaining a Court Order, it does not help as the court cannot stop the offeree from not

accepting the takeover offer.

Which of the following are not tactics to defend unwanted takeover bids?

a) Cultivate good market imageb) Keep share price low

c) Monitor shareholders registers

If the share price is low, it means the company has undervalued shares andis vulnerable to a takeover as offeror can purchase shares at cheaper price.

A wide spread of shareholders mean each shareholder has _____ shareholding.

a) Relatively smallb) Relatively largec) Below average

With more people in a pool of limited resources, each person will get a smaller share.Likewise, a company with a certain number of shares to be divided into a big group ofshareholders, each shareholder will get a small portion of it, thus relatively smallshareholding.

Under the Amalgamation Scheme, ____ in value of shareholders must approve thetakeover.

a) 51%

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b) 75%c) 90%

It is to ensure that there is a major shareholding support of the scheme fromthe target companys major shareholders and not the decision of minorities.

The Authority Organization for Singapore Takeovers Code and Mergers is_____.

a) MAS (Monetary Authority of Singapore)b) ACRA (Accounting and Corporate Regulatory Authority)c) SIC (Securities Industry Council)

A Bond market is not known as ____.

a) Fixed income Market

b) Debt Securities Marketc) Coupon Market

There is no coupon market in the financial instruments world.

Which of the following does not belong to International Bond Market?

a) Corporate bondb) Global bondc) Dragon bond

Corporate bond is issued by Local Corporation and are substantially placed locally. Thus itis not classified under International Bond Market as it does not go to the internationalmarket.

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Explanations for 80 Questions