Finc exam 203 set 3 Study Guide With Answers All Correct Graded A+.

Share splits encompass the reduction of the number of issued shares accompanied by a rise in value. - correct answer False An investor planning to buy ANZ Bank shares in 30 days can protect himself against price risk by: - correct answer buying an ANZ Bank call option that matures in 30 days. The sale of securities to the public via an investment banker by a privately owned corporation raising funds is called - correct answer an initial public offering. Which of the following statements is NOT correct? An ordinary shareholder in a troubled corporation - correct answer may lose his/her house. A share purchased at $40 at the beginning of the year paid $10 in dividends at the end of the year and was sold for a net price of $42 at the end of the year. The total annual return is - correct answer 30% ((42+10-40)/40=0.03) A forward contract is: - correct answer a contract that guarantees delivery of a certain amount of goods, such as foreign currency, for exchange into a specific amount of another currency, such as dollars, on a specific day in the future. Initial public offerings of shares are - correct answer issues of shares that have never before being offered to the public. The purpose of the margin requirements in futures contracts is to ensure that holders of contracts minimise price risk. - correct answer False Margin requirements relate to the amount of cash down payment or equity one must have deposited before participating in any trade. - correct answer True The forward price for an asset is that price that makes the forward contract: - correct answer have zero net present value. A forward contract involves two parties agreeing today on a price, called the spot price at which the purchaser will buy a specified amount of an asset from the seller at a fixed date sometime in the future. - correct answer False The secondary market for shares is important because it provides funds to deficit spending units. - correct answer False In liquidation, preference shareholders are entitled to the issue price of their preference shares plus accumulated dividends after creditors and ordinary shareholders have been paid. - correct answer False Settlement date in a forward contract means: - correct answer the future date on which the buyer pays the seller and the seller delivers the assets to the buyer. Secondary share market provides marketability and possibilities for investors to alter the riskiness of their portfolios. - correct answer True By taking a position in a derivative security that offsets the firm's risk profile, the firm can limit how much its value is affected by changes in the risk factors. - correct answer True The buyer of a forward contract is said to have a short position while the seller of a forward contract is said to have a long position. - correct answer False Futures contracts differ from forward contracts in all of the following ways except: - correct answer forward contracts involve an intermediary or exchange. An important function of derivatives markets is the transmission of information. - correct answer True The purchase of one million dollars of Treasury Bonds, delivered in 60 days, from a government securities dealer is: - correct answer a foward contract Preference shares may be redeemable. - correct answer True The most distinguishing feature of ordinary shares is their entitlement to only a residual claim against the firm's cash flows or assets. - correct answer True Put options: - correct answer give the option buyer the right to sell a security at the strike price The value of an option varies directly with: - correct answer the price variance of the underlying commodity, the time to expiration and the level of interest rates. A hedger in the financial futures market: - correct answer aims to reduce their price risk.