CMFAS Securities Products M2 2 — Questions and Answers
Question 1: What is the yield of a bond?
- The face value of the bond
- The return an investor earns on the bond, expressed as a percentage (Correct answer)
- The maturity date of the bond
- The credit rating of the issuer
Correct answer: The return an investor earns on the bond, expressed as a percentage
Bond yield is the return earned by an investor, typically expressed as a percentage of the bond's price. It includes interest payments.
Question 2: What is a rights issue?
- A legal dispute
- An offer to existing shareholders to buy additional shares at a discounted price (Correct answer)
- A type of government bond
- A mandatory share buyback
Correct answer: An offer to existing shareholders to buy additional shares at a discounted price
A rights issue gives existing shareholders the right to purchase additional shares at a discounted price, usually to raise new capital.
Question 3: What is the price-to-earnings (P/E) ratio?
- The price of a share divided by its dividend
- The price of a share divided by earnings per share (Correct answer)
- The total revenue of a company
- The book value of a company
Correct answer: The price of a share divided by earnings per share
The P/E ratio compares a company's share price to its earnings per share, indicating how much investors are willing to pay for each dollar of earnings.
Question 4: What is a warrant?
- A type of savings account
- A derivative that gives the holder the right to buy shares at a predetermined price (Correct answer)
- A government regulation
- A type of mutual fund
Correct answer: A derivative that gives the holder the right to buy shares at a predetermined price
A warrant is a security that gives the holder the right, but not the obligation, to buy underlying shares at a fixed exercise price before expiry.
Question 5: What does 'market capitalisation' mean?
- The total revenue of a company
- The total market value of a company's outstanding shares (Correct answer)
- The number of employees in a company
- The amount of debt a company has
Correct answer: The total market value of a company's outstanding shares
Market capitalisation = share price × total number of outstanding shares. It represents the total market value of a company.
Question 6: What is a corporate bond?
- A bond issued by the government
- A bond issued by a company to raise capital (Correct answer)
- A type of equity share
- A bank fixed deposit
Correct answer: A bond issued by a company to raise capital
A corporate bond is a debt security issued by a corporation to raise funds. The company pays interest and returns the principal at maturity.
CMFAS Securities Products M2 2
What is the yield of a bond?