Stock-Market interleaved practice
Instructions: Solve all problems in order. They deliberately jump between subtopics — read each carefully and pick the correct concept/formula before computing. Show working for numerical items. Total: 50 marks.
1. A company has 2,00,00,000 outstanding shares trading at ₹450 each. Calculate its market capitalization and classify it (large / mid / small / micro cap) using the common India threshold that large-cap ≈ top companies above ₹20,000 crore. (5 marks)
2. The best buy order for a scrip is ₹102.30 and the best sell order is ₹102.55. State the bid, the ask, and the bid-ask spread. Explain in one line what a narrow spread tells you about the stock. (4 marks)
3. Define a financial market and state its core economic purpose in two sentences. Then name the two functions economists call "capital allocation" and "price discovery" and explain each in one line. (6 marks)
4. Reliance's face value is ₹10 and it declares a dividend of ₹90 per share; the market price is ₹1,500. Compute (a) the dividend as a % of face value and (b) the dividend yield. Which figure matters to a new investor buying today, and why? (6 marks)
5. Match and justify: for each pair state which is a stock exchange vs an OTC market, and give the key structural difference — (i) NASDAQ dealer network historically, (ii) NSE order book. (4 marks)
6. A stock announces a 5-for-1 split. You held 200 shares at ₹2,000 each. State your new share count, new price per share, and total value after the split. What does this event NOT change about your ownership? (5 marks)
7. An investor in Mumbai wants to trade a NYSE-listed stock. Given NSE trades 09:15–15:30 IST and NYSE trades 09:30–16:00 US Eastern time, roughly which part of the Indian day/night must she watch NYSE? (IST is ahead of US Eastern by ~9.5 hours.) (4 marks)
8. Distinguish common shares from preferred shares on three axes: voting rights, dividend priority, and dividend variability. (4 marks)
9. A price-weighted index has 3 stocks priced ₹100, ₹200, ₹700 (divisor = 3). A free-float market-cap index would instead weight by (price × free-float shares). Compute the price-weighted index value, and explain in one line why the ₹700 stock dominates it regardless of company size. (6 marks)
10. State whether each is a stock or an index, and name the exchange/country: (a) INFY, (b) Sensex, (c) Nifty 50, (d) AAPL, (e) S&P 500. Then state one difference in how Sensex vs Dow Jones is weighted. (6 marks)
Answer keyMark scheme & solutions
1. (Subtopic 1.1.9 Market cap; 1.2.8 outstanding shares) Market cap = shares × price = 2,00,00,000 × 450 = ₹9,00,00,00,000 = ₹900 crore. Since ₹900 crore < ₹20,000 crore threshold, this is small-cap (not large-cap). Why this method: uses outstanding (not authorized/issued) shares × market price — the classification is a size bucket, not a price judgment.
2. (1.1.11 Bid/ask/spread) Bid (best buy) = ₹102.30, Ask (best sell) = ₹102.55, Spread = 102.55 − 102.30 = ₹0.25. A narrow spread signals high liquidity — many buyers/sellers, low transaction cost. Why: spread = ask − bid; students must not average them.
3. (1.1.1 Define market; 1.1.2 allocation & price discovery) A financial market is a mechanism/place where buyers and sellers trade financial assets (shares, bonds). Its economic purpose is to channel savings into productive investment.
- Capital allocation: directs money to companies that can use it most productively (via willingness to pay).
- Price discovery: continuous trading reveals the consensus fair price of an asset from aggregated supply/demand.
4. (1.2.4 Dividends & yield; 1.2.7 face vs market value) (a) Dividend % of face value = 90 / 10 = 900%. (b) Dividend yield = 90 / 1500 = 6%. The yield (6%) matters to a new buyer, because they pay market price, not face value. Why: the trap is the eye-catching 900% "dividend rate" quoted on face value; real return uses market price.
5. (1.1.3 Exchange vs OTC; 1.1.4 what an exchange does) (i) NASDAQ dealer network historically = OTC-style (dealers/market-makers quote, no central physical floor originally). (ii) NSE order book = stock exchange (centralized electronic order-matching, price-time priority). Key difference: exchanges match orders centrally & transparently; OTC trades are negotiated bilaterally through dealers.
6. (1.2.5 Stock splits) 5-for-1: new shares = 200 × 5 = 1,000; new price = 2,000 / 5 = ₹400; total value = 1,000 × 400 = ₹4,00,000 (unchanged, = 200 × 2,000). It does NOT change your ownership percentage or total value — only the number and per-share price.
7. (1.1.7 Trading hours & time zones) NYSE 09:30 ET = 09:30 + 9:30 = 19:00 IST; NYSE close 16:00 ET = 01:30 IST (next day). So she must watch evening to past midnight India time (≈7:00 PM to 1:30 AM IST). Why: pure time-zone shift by +9.5 hrs; tests conversion, not trading rules.
8. (1.2.2 Common vs preferred; 1.2.3 voting rights)
| Axis | Common | Preferred |
|---|---|---|
| Voting | Yes | Usually no |
| Dividend priority | After preferred | First / fixed |
| Variability | Variable, not guaranteed | Fixed rate, usually stable |
9. (1.2.12 free-float vs price-weighted index; 1.2.9 index construction) Price-weighted value = (100 + 200 + 700) / 3 = 1000 / 3 = 333.33. The ₹700 stock dominates because price-weighting adds raw prices — a high price per share carries more index weight regardless of the company's actual market size/free-float. Why: contrasts the two weighting schemes; Dow is price-weighted, Sensex/Nifty free-float cap-weighted.
10. (1.1.10 ticker/scrip; 1.2.9–1.2.12 indices; 1.1.5/1.1.6 exchanges) (a) INFY = stock (Infosys, NSE/BSE India). (b) Sensex = index (BSE India). (c) Nifty 50 = index (NSE India). (d) AAPL = stock (Apple, NASDAQ USA). (e) S&P 500 = index (USA). Weighting difference: Sensex = free-float market-cap weighted; Dow Jones = price-weighted.
[
{
"claim": "Q1 market cap = 900 crore (small-cap since < 20000 crore)",
"code": "shares=20000000; price=450; mcap=shares*price; crore=mcap/1e7; result = (crore==900) and (crore < 20000)"
},
{
"claim": "Q4 dividend yield = 6% and face-value rate = 900%",
"code": "yield_pct=90/1500*100; fv_pct=90/10*100; result = (yield_pct==6) and (fv_pct==900)"
},
{
"claim": "Q9 price-weighted index = 1000/3",
"code": "from sympy import Rational; val=Rational(100+200+700,3); result = (val==Rational(1000,3))"
}
]