Financial Markets Diploma

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Name : Write the name in English as you want it to appear on the certificate Email

A company’s earnings per share, dividend per share and price per share in the prior year are $6.26, $2.50 and $53 respectively.
What is its dividend yield?

4.72%

11.81%

16.53%

6.98%

When a company desires to decrease the market value per share of its common stock, the company will:

Retain its current earnings

Buy treasury stock

Split the stock

Sell treasury stock

Fiscal policy attempts to stabilize the economy during the business cycle through:

Changes in the inflation rate

Changes in tax policy or government spending

Discretionary regulation of profits and wages

Changes in the quantity of money or the interest rate

Which of the following instruments are traded in a capital market?

U.S. government agency securities

Commercial Papers

Negotiable bank CDs

Repurchase agreements

(I) A share of common stock in a firm represents an ownership interest in that firm.
(II) A share of preferred stock is as much like a bond as it is like common stock.

Both are true

(I) is false, (II) is true

Both are false

(I) is true, (II) is false

Monetary policy attempts to stabilize the economy by changes in:

Personal taxes

Business taxes

The interest rate

Government spending

Which of the following actions will increase a company's quick ratio?

Issue short-term debt and use the proceeds to purchase inventory

Issue equity and use the proceeds to purchase inventory

Reduce inventories and use the proceeds to reduce long-term debt

Reduce inventories and use the proceeds to reduce current liabilities

The current ratio of a company is 1.5, which of the following actions will increase this company's current ratio?

Use cash to reduce accounts payable

Use cash to reduce short-term notes payable

All of the answers are correct

Issue long-term bonds to repay short-term notes payable

Net income for 2020 of ABC Company is $150,000 and the company distributed $90,000 as cash dividends to its common shareholders. If all other things remain equal, by how much does its Stockholders equity increase for the year?

$90,000

$150,000

$60,000

$240,000

When a stock market index moves in one direction it means that:

The movement in the index is dominated by the movement in the stocks which move in the market direction

Most of the individual stocks in that index move in the same direction of the market

The number of stocks moves in the overall market direction is less than the number of stocks moves in the opposite direction

All the individual stocks in that index moves in that direction

The date when the stockholder right to receive a dividend expires is called the:

Declaration date

Ex-dividend date

Announcement date

Record date

RAMA company stock price stood at $120 at the beginning of 2021. On 01/04/2021 the company declared a 3 for 2 stock splits. What is the approximate new market price for RAMA Stock?

$40

$60

$80

$120

The exchange rate is:

The growth rate differential between two countries

The rate at which goods are sold in a country

The interest rate differential between two countries

The value of one currency in terms of another

A company’s income statement includes items covering depreciation, payments to bondholders and taxes. Which of these three items, if any, must be deducted from the net sales figures in order to obtain the operating profit?

Only the bondholder payments and the taxes

Only the depreciation

None of them must be deducted

All of them must be deducted

Companies split their shares in order to:

Reduce its earnings per share figure

Reduce the amount of taxes it pays on its current earnings

Make it more liquid and available to larger segment of the market

Make existing shareholders more wealthy by having more shares

How long will it take $10,000 to double, if the interest rate is 5% compounded annually?

Approximately 10 years

Approximately 15 years

Approximately 20 years

Approximately 5 years

The New York Stock Exchange is primarily

An over-the-counter market

A secondary market

An organized auction market

A secondary market & An organized auction market

Real gross domestic product or real GDP

Is the total production of final goods and services

Is all of the mentioned

Grows during an expansion

Is aggregate output

After the day of record of a dividend paying stock:

Buyers of the stock pay higher price because they receive the dividends

The stock price will not be affected

Sellers of the stock receive higher price because they receive the dividends

Buyers of the stock pay lower price because they do not receive the dividends

In a market order, an investor asks the broker to execute a required transaction:

As quickly as possible
At a certain specific price
At the lowest (Highest) price in case of a buy (sell)

1, 2 and 3

1 and 2 only

1 and 3 only

1 only

Which one of the following activities can be classified as financing activity in the Cash Flow statement?

Collection of receivables

Purchase of treasury stock

Sale of trademarks

Purchase of equipment

(I) The coupon rate is the rate of interest that the issuer of the bond must pay.
(II) The coupon rate is usually fixed for the duration of the bond and does not fluctuate with market interest rates.

Both are true

(I) is true, (II) is false

(I) is false, (II) is true

Both are false

Call provisions will be exercised by:

The investor when Interest rates and bond values fall

The issuer when interest rates fall

The investor when interest rates rise

The issuer if interest rates rise

Financial markets have the basic function of:

Bringing together people with funds to lend and people who need funds

Assuring that governments need never resort to printing money

Assuring that the swings in the business cycle are less pronounced

Which of the following are examples of a primary market transaction?

Listed company issues additional sock

An investor asks his broker to purchase 1,000 shares of SABIC common stock

A company issues new bonds

An investor buys 60 ABC shares currently trading at $80 per share, assume the initial margin is 50% and the maintenance margin is 35%, and that the broker charges 10% per year for the loan.
What is the price below which the investor has to replenish his margin with the broker?

$61.54

$12.31

$55.38

After a stock split:

The Owners equity section of the balance sheet will decrease

Will initially decrease at the time of the split and then increase afterwards

The owners’ equity section of the balance sheet will increase

The owners’ equity section of balance sheet will remain the same and not be affected

Which of the following can be described as involving direct finance?

People buy shares in a mutual fund

None of the mentioned options

A pension fund manager buys commercial paper in the secondary market

A corporation’s stock is traded in an over-the-counter market

Periods in which output and employment are falling are known as:

Recessions

Deflations

Booms

Expansions

(I) Callable bonds must have a higher yield than comparable non – callable bonds.
(II) Convertible bonds are attractive to bondholders and sell for a higher price than comparable nonconvertible bonds.

(I) is true, (II) is false

Both are true

Both are false

(I) is false, (II) is true

Preferred stockholders hold a claim on assets

That has priority over the claims of bondholders but after that of common stockholders

That has priority over the claims of common stockholders, but after that of bondholders

That has priority over the claims of neither common stockholders nor bondholders

That has priority over the claims of both common stockholders and bondholders

Intangible assets are called so, because they:

Have only nominal value to the company

Have real value but have no physical attributes

Have no real value to the company on their own

Have value only if they are disposed - off by the company

Which one of the following is not a desirable property of a financial market?

Efficiency

Shallowness

Depth

Wide market

Which of the following is a chief measure of economic growth over time?

Inflation

Increases in real per capita GDP

Increases in the available labor supply

Decline in real interest rates

Which of the following instruments is not traded in a money market?

Government Treasury Bills

Long term Bonds

Bankers acceptances

Repurchase Agreements

When the value of the dollar changes from £0.5 to £0.75, then the pound has _____and the dollar has .

Appreciated; depreciated

Depreciated; appreciated

Depreciated; depreciated

Appreciated; appreciated

Which of the following statements about the characteristics of debt and equity are true?

They both involve a claim on the issuer’s income

They both enable a corporation to raise funds

All of the mentioned

They can both be long-term financial instruments

If the issuer of a share announces a cash dividend and investor A sells some of these shares to investor B on the day before the record date, which of them will be entitled to this dividend payment?

Both - split on a 50 : 50 basis

Investor B in entirety

Investor A in entirety

Both - split pro rata based on days held

In calculating the S&P 500 index (which is a value-weighted index), stock splits should be:

Ignored because they occur so infrequently

Adjusted for in the denominator of the index

Adjusted for in the numerator of the index

Ignored because they do not affect the value of the index

The present value of a single future sum:

Increases as the number of discount periods increases

Depends upon the number of discount periods

Increases as the discount rate increases

Is generally larger than the future sum

Which of the following can be described as involving indirect finance?

Investors buy shares in a Saudi equity mutual fund

A Saudi company takes out a loan from a Saudi bank

All of the mentioned

A Saudi bank buys commercial paper in a secondary market

A company following a residual dividend payout policy will pay higher dividends when, everything else equal, it has:

A lower opportunity cost of retained earnings

A lower target debt- to- equity ratio

Lower earnings available for investment

Less attractive investment opportunities

What does the ‘current ratio’ of a company primarily indicate?

The net profit margin achieved on each unit of sale

The return achieved on its current assets

The extent to which its current assets cover its short-term liabilities

The relationship between its long-term debt and its total assets

The Red Sea Food Company has the following relationships:

Total assets / Equity 5
Return on assets (ROA) 4%

What is the company’s return on equity?

2.67%

1.5 Times

Value-weighted index calculation:

Is affected by both stock splits and stock dividends

Is not affected by stock splits but affected by stock dividends

Is not affected by stock dividends but affected by stock splits

Is not affected by both stock splits and stock dividends

If the total assets for the LIGHT Company are $240,000 while its current liabilities is $90,000. The company’s long term liabilities and owners’ equity is:

$240,000

$150,000

No enough information

$330,000

XYZ company share is currently trading at $120 each. If the company decides to have a 1 for 1 bonus issue, what will happen to its share price?

Fall to $60 per share

Increase but difficult to determine the new high price

Will fall but difficult to determine the new low price

Increase to $240

The custodian of an investor shares has responsibility for all the following except:

Voting on behalf of investors

Exchange rate movements control

Keeping investment safe

Collecting dividends

The responsibility for the proper preparation of company’s financial statements rests with:

Audit Committee

Internal audit department

External auditors

Management of the company

In deep financial markets:

There are plenty of buy and sell orders within a narrow range around the current market prices

Supply of securities exceeds demand for those securities

There are plenty of buy and sell orders within a wide range around the current market prices

There are large order sizes above and below the current market price

You just purchased a piece of land for $10 million and you expect a 12 percent annual rate of return on your investment, how much will you sell the land for in 10 years?

$25 million

$38.720 million

$34.310 million

$31.060 million

The latest financial statements for "MAYA Corporation" shows earnings per share of $6.20, dividends per share of $2.40 and a market price of $50 per share.
What is its current ‘pay-out ratio’?

0.12

0.39

0.17

0.05

Which of the following refers to selling stock borrowed from another investor?

A Stop-loss order

A Short sale

A Margin trade

A Limit order

XYZ Company had the following balances at the end of 2010:

Cash	10,000
Net accounts receivables	35,000
Inventory	65,000
Prepaid expenses	15,000
Equipment	120,000
Common stock	130,000

The amount of XYZ current assets is:

$125,000

$255,000

$245,000

$375,000

Which of the following are long-term financial instruments?

A negotiable certificate of deposit

A government Treasury Bill

A government Treasury Bond

A banker’s acceptance

Which of the following are short-term financial instruments?

A negotiable certificate of deposit

A banker’s acceptance

A negotiable certificate of deposit & A banker’s acceptance

A government Treasury Bond

A recession leads to all of the following except:

Reduced output

Higher employment

Higher unemployment

Reduced income and living standards

Gross Domestic Product is defined as:

Disposable income + taxes + investment spending + exports + imports

Consumer spending + government transfers + investment spending + exports –imports

Consumer spending + government purchases + investment spending + exports –imports

Consumer spending + government purchases + financial spending + exports –imports

Which of the following corporate actions is not mandatory?

Rights subscription

Cash dividends

Shares repurchase

Stock dividends

Which one of the following items is usually included within the ‘cash flow from operating activities’ section of a company’s cash flow statement?

Changes in working capital

Interest payments

Sale of land

Purchase of plant equipment

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