CONFIDENTIAL TEST 1 MAF653 MAC-JULY 2021
Questions
1. Which of the following statement about pre-emptive rights is FALSE? (1m)
A) Shareholders are given the rights to purchase new shares before they are offered to
the public.
B) A company cannot waive shareholders’ pre-emptive rights.
C) Pre-emptive rights ensure that shareholders maintain proportionate ownership pf
the company.
2. The following are the privileges and legal rights of shareholders, EXCEPT: (1m)
I) Common shareholders are given priority for residual claim over preference
shareholders.
II) Shareholders have the rights to examine the company’s list of shareholders.
III) Shareholders have unlimited liability and are not liable for any unpaid portion
of the capital they own.
IV) Shareholder can only give one vote for each share they own.
A) I and III
B) II and IV
C) I, III and IV
3. Which of the following is a feature of preference shares? (1m)
A) Preference dividend payment is not a company’s liability.
B) Preference dividends are tax deductible.
C) Preference shares may force a company into liquidation due to unpaid dividends.
4. Risk-taker investors are interested to invest in penny stocks because: (1m)
A) The stock price is low and may rise due to performance growth,
B) The stocks are commonly high-priced due to high demand
C) The stocks pay higher-than-average dividend.
5. The listing requirement for the main market of Bursa Malaysia as shown below is false,
EXCEPT: (1m)
I) A total market capitalization of at least RM500 million
II) A consistent aggregate profit after tax of at least RM5 million for 3 to 5 full
financial years
III) Generated operating revenue for at least 1 full year after submission
IV) Own the right to build and operate an infrastructure project in or outside
Malaysia with project costs equal or above RM500 million
A) I and II
B) II and III
C) I and IV
6. An investor purchases 500 shares of stock at a price of RM25 per share. The initial
margin requirement is 75%. What is the smallest amount that the investor can put up
that will satisfy the initial margin requirement? (1m)
A) RM6,250
B) RM8,750
CONFIDENTIAL TEST 1 MAF653 MAC-JULY 2021
C) RM9,375
7. Johan is considering an investment in the stock of Terra Bhd. The company pays
dividend of RM2.50 and expects the dividend to grow at 4% per year until perpetuity.
The current quoted price of Terra’s stock is RM35. Determine the maximum price that
Johan is willing to pay for the stock of Terra Bhd if the required rate on investment is
12%. (2m)
A) RM33.50
B) RM32.50
C) RM35.20
8. LiAnn Bhd paid annual dividend of RM2.00 per share. Due to recession, the dividends
are expected to reduce by 6% in the next 2 years, grow at 5% in the third year, and at a
constant rate of 8% thereafter. Determine the share value given that the required rate of
return is 10%. Choose the nearest answer. (2m)
A) RM73.85
B) RM79.85
C) RM77.85
9. In year 2020, Milan Bhd reports a profit attributable to the common stockholders of
RM250 million with 300 million units of stocks issued to the public. The average price
earnings ratio for the industry is 8 times. Calculate the underlying value of Milan Bhd’s
stock. Choose the nearest answer. (2m)
A) RM6.67
B) RM7.67
C) RM5.67
10. ABC Co has just announced that its dividend per share for the previous year was
RM0.40. ABC Co is all-equity firm that finances its investments from retained earnings.
The return on equity is 10%, and its dividend payout ratio is 50%. Assess the value of
ABC Co’s share if the required return from the investors is 8%. (2m)
Formula: g = ROE X DPR
A) RM14
B) RM13
C) RM15
11. ABC Co’s recent financial data are as follows: (2m)
Profit after tax RM700,000
Dividend RM400,000
Retained profit RM300,000
ABC Co has 2 million shares in issue. Compute the price per share of ABC Co if the
industry PE ratio is 12 times.
A) RM1.80
B) RM4.20
C) RM6.00
CONFIDENTIAL TEST 1 MAF653 MAC-JULY 2021
12. ABC Co has 200 million shares in issues with latest reported profit after tax of RM120
million. The firm is considering financing its investment that cost RM200 million using
rights issue of 1 for 4 at a 30% discount. The current market price of ABC Co is at RM6
per share.
Mr Zachary owns 1000 shares of ABC Co and has decided to exercise only 60% of his
rights. He is not sure of what to do with the remaining of his rights. He approaches you
and ask about the impact of the following actions on his wealth.
i. Sell the remaining 40% rights
ii. Let the rights expired
Select the most correct implications of the above actions on Mr Zachary’s wealth. (2m)
A) Sell the remaining 40% rights, the wealth remains at RM6000
B) Sell the remaining 40% rights, the wealth reduced by 40%
C) Let the rights expired, his wealth remains at RM6000
13. The company had announced a dividend of RM3 per share to their shareholders. In the
recent report, the company’s annual dividend is expected to grow at 10% per year for
the next 4 years. However, due to forecasted economic turmoil affecting the industry,
the growth rate will decrease at a rate of 6% a year thereafter. If the required rate of
return is 12%, determine the maximum price of the company’s stock. Choose the
nearest answer. (2m)
A) RM61.87
B) RM60.75
C) RM59.90
14. Company A paid RM2.30 dividends to the shareholders and it was expected that the
amount would remain the same till perpetuity. The company has required rate of return
of 12% and stock is selling at RM25. Advice Shahrul whether the investment in
Company A is profitable or not. (1m)
A) Profitable therefore should invest.
B) Not profitable therefore should not invest.
C) Cannot be determined.
15. Mr. Buzar is interested in Selasih Bhd’s stock which is currently selling at RM27 per
share. The information below is regarding the company: (2m)
Dividend next year : RM0.50 per share.
Dividend growth : 8% each year starting this year till perpetuity.
Required return : 10 %
Advice Mr. Buzar whether he should invest in Selasih Bhd’s or not.
A) No, because the current market price is undervalued.
B) Yes, because the current market price is overvalued.
C) No, because the current market price is overvalued.
16. If the market price of the potential stock held by a shareholder is RM 10 per share and
the intrinsic value is RM 3 per share, recommend the investor what is the best action
could to be taken: (1m)
CONFIDENTIAL TEST 1 MAF653 MAC-JULY 2021
A) Sell the stocks.
B) Buy another stock.
C) Do not buy and sell the stocks.
17. In’amul was thinking to invest in Selayang Bhd’s stock. However, the share price of the
stock keeps volatile. Advice In’amul when is the perfect time to invest if he wants to
purchase it at lower cost. (1m)
A) When the share price is overpriced.
B) When the share price is underpriced.
C) When the share price is correctly priced.
18. Corporate bonds will be issued by __________. (1m)
A) Corporations emerging from bankruptcy that need funds.
B) Corporations with strong credit rating that need funds.
C) Corporations that have the approval of the Board of Directors.
19. Which of the following is the best explanation for convertible bonds? (1m)
A) Corporate bonds that allow the holder to convert them into shares.
B) Corporate bonds that can be converted into cash at any time.
C) Corporate bonds that have maturity dates determined by the bondholder.
20. Bank Negara Malaysia issue bonds to manage liquidity in both conventional and Islamic
financial markets. (True or False) (1m)
21. The coupon rate of a floater bond is pegged to an agreed benchmark. If this references
rise, the floating rate will fall. (True or False) (1m)
22. Based on Rating Agency Malaysia, if the company was rated as BB, it shows that the
ability of the company to pay it financial obligation is weak. (True or False) (1m)
23. If a bond sells at a high premium, then which of the following relationship hold true? (Pₒ
represents Price of a bond and YTM is the bond’s yield to maturity.) (2m)
A) Pₒ < par and YTM > the coupon rate
B) Pₒ > par and YTM > the coupon rate
C) Pₒ > par and YTM < the coupon rate
24. What is the value of your bond if it has face value of RM1,000 with 8% coupon rate and
your required rate of return is 15%? (1m)
A) More than its face value.
B) Less than its face value.
C) RM1,000
25. Your broker offers you an opportunity to purchase a bond with coupon payments of
RM90 per year, and has a nominal value of RM1000. If the yield to maturity on similar
bonds is 8%, this bond should be: (1m)
A) Sell at a premium.
B) Sell at a discount.
CONFIDENTIAL TEST 1 MAF653 MAC-JULY 2021
C) Sell for par value.
26. Leyla bought a bond from Kinrara Bhd. which is mature in six years. The coupon rate of
the bond is 7.5%, and the face value of the bond is RM1,000. Kinrara Bhd. pays the
interest semi-annually. The market interest rate is at 8%. Determine the bond price.
Choose the nearest answer. (2m)
A) RM991.75
B) RM967.64
C) RM976.54
27. Hilman Berhad has issued a 5% convertible bonds at a 20% premium from it par value to
fund its projects. The conversion price of the bond was set at 4% of the par value of the
bond. The current market price of the bond is RM120. The market price of the share
related to the convertible bond is RM5. Calculate the conversion price and conversion
ratio. (2m)
A) Conversion price: RM4.80, Conversion ratio 25 units
B) Conversion price: RM4, Conversion ratio 25 units
C) Conversion price: RM4.50, Conversion ratio 20 units
28. Sol Berhad’s has issued a 4 % convertible bonds to finance its long-term projects. Below
is the information related to the bond: (2m)
Par value : RM100
Market value of bond : RM110
Conversion price : RM5 per unit
Market price per share : RM4.50
Calculate the conversion premium.
A) RM20
B) RM30
C) RM40
29. The following information concerns a convertible bond. (2m)
Principal value RM1,000
Coupon 6%
Maturity 20 years
Conversion price 2% of par value
Call price RM1,060
Price of the common stock 35% above conversion price
Determine what is the value of the convertible bonds in terms of stock.
A) RM659.42
B) RM350
C) RM1,350
CONFIDENTIAL TEST 1 MAF653 MAC-JULY 2021
30. Serimas Bhd issued a RM1,000 par value callable bond. The bond pays a coupon rate
of 8% per year while other similar risk type of investment yields 10% per annum. The
remaining years to maturity for the bond is 10 years. If you expect the above bond to be
called in three (3) years time, with two (2) years interest as a call penalty, calculate the
intrinsic value of the bond. Choose the nearest answer. (2m)
A) RM1,070.46
B) RM950.25
C) RM984.78
31. All of the following statements are correct about put provisions of the bond EXCEPT
(1m)
A) Some bonds contain a provision that enables the buyer to sell the bond back to the
issuer at a pre-specified price prior to maturity.
B) Enables issuers to reduce their interest costs if rates fall after a bond is issued,
since existing bonds can then be replaced with lower yielding bonds.
C) Since a put provision is advantageous to the bond holder, the bond will offer a lower
yield than an otherwise identical bond with no put provision.
32. The risk that an investment's value will change due to a change in the absolute level of
interest rates, in the spread between two rates, in the shape of the yield curve or in any
other interest rate relationship. Such changes usually affect securities inversely and can
be reduced by diversifying or hedging. The definition above is referred to (1m)
A) Coupon rate
B) Interest rate risk
C) Price volatility risk
33. Central Bank’s zero coupon savings bonds are sold at 75% of their face value. They are
redeemable at par after five years. The par value of this bond is RM100, identify the yield
for this bond. Choose the nearest answer. (2m)
A) 4%
B) 5%
C) 6%
34. Bond valuation is the process whereby the principle of risk-return trade-off is applied to
value a bond. The bond’s future coupon interest payments and its principal amount are
discounted using an appropriate yield rate to find the bond value. (True or False) (1m)
35. The yield curve is a graphic representation of the relationship between the maturities and
interest rates on a debt. Yield curve risk arises because of changes in industry
performance. A bond’s yield fluctuates every 6 months throughout its life. (True or False)
(1m)
