CMFAS Securities Products M2 — Questions and Answers
Question 1: What is an ordinary share?
- A type of bond
- An ownership stake in a company with voting rights (Correct answer)
- A government security
- A fixed deposit
Correct answer: An ownership stake in a company with voting rights
An ordinary share (common stock) represents an ownership interest in a company. Holders have voting rights and may receive dividends.
Question 2: What is a bond?
- An ownership share in a company
- A debt instrument where the issuer promises to repay the principal with interest (Correct answer)
- A type of insurance policy
- A savings account
Correct answer: A debt instrument where the issuer promises to repay the principal with interest
A bond is a fixed-income debt instrument where the issuer borrows money from investors and agrees to pay interest and return the principal at maturity.
Question 3: What is the difference between a market order and a limit order?
- They are the same thing
- A market order executes immediately at the best available price; a limit order specifies a price (Correct answer)
- A limit order is faster than a market order
- Market orders are only for bonds
Correct answer: A market order executes immediately at the best available price; a limit order specifies a price
A market order executes immediately at the current best available price, while a limit order only executes at the specified price or better.
Question 4: What is a preference share?
- A share that anyone prefers to buy
- A share that has priority over ordinary shares for dividends and asset distribution (Correct answer)
- A share that can only be bought by institutions
- A share with unlimited voting rights
Correct answer: A share that has priority over ordinary shares for dividends and asset distribution
Preference shares have priority over ordinary shares for dividend payments and claims on assets during liquidation, but typically carry limited or no voting rights.
Question 5: What is an initial public offering (IPO)?
- A private sale of shares
- The first time a company offers its shares to the public (Correct answer)
- A type of corporate bond
- A government grant
Correct answer: The first time a company offers its shares to the public
An IPO is when a private company first offers its shares to the public through a listing on a stock exchange.
Question 6: What is a dividend?
- A fee charged by a broker
- A portion of a company's profits distributed to shareholders (Correct answer)
- A type of stock exchange
- A government tax
Correct answer: A portion of a company's profits distributed to shareholders
A dividend is a payment made by a company to its shareholders, usually from its profits, as a return on their investment.
CMFAS Securities Products M2
What is an ordinary share?