Jamaica Securities Course

FINAL EXAMINATION

Thursday, March 04, 2021

INSTRUCTIONS: PLEASE READ CAREFULLY

• This paper consists of three (3) sections as detailed below. Answer ALL questions

o Section 1 has ten (10) short answer questions (2 marks for each question) 20
Marks.

o Section 2A has two (2) calculation questions (2 marks per Question)

o Section 2B Nine (9) marks for this section.

o Section 3 has fifteen (15) multiple choice questions. (One mark for each correct
answer)

• The use of a calculator is permitted.

• Write your responses on the sheets provided along with your e-Campus ID#, the date
and the name of the course.

• Do not write your name on the response sheets or your question sheets.

• This examination is scheduled for Two and a Half (2 ½) hour

• Do not turn over this sheet until you are told to do so by the invigilator.

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Section 1 Two (2) marks allotted to each question. Twenty (20) marks overall
Give concise answers of up to 3 sentences to the following
1. Give two reasons why a company does not have to do an initial public offering (IPO)
before listing by introduction.
2. What are two ways by which ethical conduct can save a company money?
3. Identify two ways in which interest on a bond differs from dividends on ordinary shares.
4. Explain how the share capital of a company can remain unchanged although the number
of issued shares has increased.
5. You are an investment advisor and your client has two investment objectives – capital
growth and income. Give an example of the type of financial instrument you would
recommend to meet each objective and say how each instrument would be suitable for
that purpose. (Do not use the same instrument for both objectives.)
6. A stock trades at a high price/earnings ratio. This could be good, but it could also be
bad. Explain each situation.
7. Identify two risks that can be eliminated or reduced by keeping stock in electronic form
rather than in the form of paper certificates.
8. What is a coincident indicator? Cite one example.
9. Identify the primary difference between the money market and the capital market, and
say in what way bearer securities differ from registered securities.
10. Why are open-end unit trusts so called?
Section 2A (Two (2) marks per question. Six marks overall)
Calculate the following from the Caribbean Cement Company audited financial statements for
2015.
1. Return on equity
2. Current ratio
3. Operating profit margin
Section 2B (Nine (9) marks for this section)
Using the following headings and information, organise the following portfolio in tabular
form: Asset class (money market securities, long term fixed income securities, equities),
Amount, Price, Market value, Percentage. Show the totals where applicable, and give the
full name of each security.
• $2.000,000 Bank of Jamaica 5% Repos December 31, 2021, Price $100
• $1,000,000 Claremont Ltd 11% Debenture March 28, 2025, Price $80
• 30,000 JSE Ltd. ordinary shares, Price $50

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 • $1.050,000 Bank of Jamaica Treasury Bills June 1, 2021, Price $95.2381 (Round to the
nearest dollar)
• 15,000 Grace Kennedy Co. Ltd ordinary stock units, Price $100
• $2,000,000 GOJ 12% Benchmark Notes March 15, 2028, Price $110
• 50,000 Seprod Ltd ordinary shares, Price $20
Section 3 – Multiple choice (One mark for each correct answer)
Select the best answer in each of the following
1. The capital market is the market
a) For medium term securities
b) For long term securities
c) In which only the government raises capital
d) To which only businesses supply capital

2. Futures are forward contracts that

a) Are highly standardised in terms and features
b) Call for the purchase of a specific amount of a financial asset at some future
date at a price set at that future date
c) Trade on stock exchanges
d) Use standardisation to eliminate third party risk

3. Unit trusts
a) Are investment trusts whose units are bought directly from the fund and can
be sold back at any time
b) Offer investors limited scope for diversification
c) Are marketable but not necessarily liquid
d) Allow investors to select the securities which they prefer

4. The following are the advantages of debt financing

a) Relative low pre-tax cost due to the tax-deductibility of interest
b) Potential to enhance earnings per share through financial leverage
c) Ability of owners to dilute their control over the business
d) Increased financial risk

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5. Treasury bills are
a) Debt instruments sold by Bank of Jamaica at a discount by non-competitive
bidding only
b) Issued in maturities of 365 days or longer
c) Quite liquid
d) Exempt from income tax because their returns to the investor are calculated
as face value – less purchase price

6. The share capital of a company

a) Is the amount received by a company for its shares at the time they were
issued
b) Does not increase with the life of the company
c) Includes only ordinary shares
d) Includes price changes caused by secondary market activity

7. The types of securities listed on the Jamaica Stock Exchange include

a) The shares of private limited liability companies
b) Preference shares
c) Promissory notes
d) Unit trusts

8. Ethics is important to the securities industry because it

a) Helps to build trust which is the foundation of the financial sector
b) Makes rules that guide behaviour
c) Is a means of punishing dishonest industry players
d) Increases the cost of doing business

9. The money market

a) Trades only government securities.
b) Trades registered and bearer securities
c) Trades several long term interest-bearing securities
d) Trades only fixed rate securities

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 10. Economic growth is the measure of
a) The increase in the goods that an economy produces in one period of time
compared to another
b) The increase of services in an economy in one period of time compared to
another
c) The increase in the output of an economy in one period compared to
another
d) A country's economic growth on a per capita basis

Which of the following is not correct?

11. The asset mix
a) Has a greater influence on portfolio performance than stock selection
b) Should reflect the total returns expectations of each asset group
c) Is the same as the weighting of the portfolio
d) Will change with the state of the market, investor expectations, short term
developments in the economy and investor objectives

12. The benefits associated with buying shares include

a) Receiving interest
b) Capital appreciation
c) Participating in major decision-making at annual general meetings
d) Using shares as security for loans

13. Fixed assets

a) Consist of land, buildings, machinery etc.
b) Are intended to be converted to cash.
c) Are shown on the balance sheet at cost
d) Except for land, are depreciated each year and the total accumulated
depreciation deducted from original cost

14. The role of the stockbroker is to

a) Execute orders to buy and sell shares on the stock exchange
b) Work to get the best price for clients as their principals
c) Provide investment advice
d) Do research on companies and the economy

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15. In a separately-managed account
a) The owner of the portfolio is allowed to give instructions to the portfolio
managers regularly
b) Guidelines are set out in a detailed investment policy statement (SIPP)
c) The SIPP captures investment objectives, risk tolerance and other
requirements for management of the portfolio
d) Charges are fee-based

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