Week 7 Chapter 6: Investors in the Share Market True/False QUESTIONS 1. Investing in shares of publicly listed corporations should, on average, over time provide a higher return than investing in fixed-interest securities. a. True b. False 2. Investments through a stock exchange are limited to ordinary shares issued by listed corporations. a. True b. False 3. Portfolio theory contends that a diversified share portfolio enables an investor to significantly reduce the portfolio’s exposure to systematic risk. a. True b. False 4. A share that has a beta of one is twice as risky as an average share listed on a stock market. a. True b. False 5. Shares that typically demonstrate a negative price correlation will usually move in the same direction if new economic information comes to the market. a. True b. False 6. With dividend imputation, a shareholder with a marginal tax rate that is lower than the company tax rate will pay no tax on a fully franked dividend received, and the excess credit can be applied against other assessable income. a. True b. False 7. A company’s liquidity, that is, its ability to meet its short-term financial obligations, may be measured using the current ratio and the liquid ratio. Of the two ratios, the latter is the more stringent measure. a. True b. False 8. It can be safely inferred that a company with a low current ratio is a riskier investment than a company with a high current ratio. a. True b. False
9. In comparing the profitability of different companies that have quite different financial structures, the use of the EBIT to total funds employed ratio would be more suitable than the EBIT to shareholders’ funds ratio.
MAF 702 Lecture 7 (Topic 7) MCQs and T/F Questions
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a. True b. False 10. Given that the banking sector consistently displays a higher debt-to-equity ratio than do other sectors of the market, it can be reasonably concluded that there is a greater level of risk associated with investments in this sector. a. True b.
9. In comparing the profitability of different companies that have quite different financial structures, the use of the EBIT to total funds employed ratio would be more suitable than the EBIT to shareholders’ funds ratio.
MAF 702 Lecture 7 (Topic 7) MCQs and T/F Questions
Page 1
a. True b. False 10. Given that the banking sector consistently displays a higher debt-to-equity ratio than do other sectors of the market, it can be reasonably concluded that there is a greater level of risk associated with investments in this sector. a. True b.