Level 2 — RecallShares, Ownership & Indices

Shares, Ownership & Indices

⏱ 30 minutes40 marksprintable — key stays hidden on paper

Subject: Stock-Market Chapter: Shares, Ownership & Indices Level: 2 (Recall — definitions, standard problems, short derivations) Time Limit: 30 minutes Total Marks: 40

Instructions: Answer all questions. Show working for all numerical questions. Use $...$ for any calculations.

Q1. Define a "share" and state briefly what it represents for the holder in a company. (3 marks)

Q2. State any three differences between common (equity) shares and preferred shares. (3 marks)

Q3. A company declares an annual dividend of $₹8$ per share. The current market price of the share is $₹200$ . (a) Calculate the dividend yield. (2 marks) (b) If the market price falls to $₹160$ with the same dividend, what is the new dividend yield? (2 marks)

Q4. Define the following terms clearly: (a) Face value (2 marks) (b) Market value (2 marks)

Q5. A company has an authorized capital allowing 10,00,000 shares. It has issued 6,00,000 shares, of which it has bought back and holds 50,000 as treasury shares. (a) How many shares are outstanding? (2 marks) (b) Explain the difference between "issued" and "outstanding" shares. (2 marks)

Q6. A shareholder holds 200 shares of face value $₹10$ each. The company announces a 2-for-1 stock split. (a) How many shares does the holder now own and what is the new face value? (2 marks) (b) Explain why the total value of the holding is unchanged by a stock split. (2 marks)

Q7. Distinguish between a bonus share issue and a rights issue. Give one key feature of each. (4 marks)

Q8. Explain what a buyback of shares is, and state two reasons a company may undertake one. (4 marks)

Q9. Consider a simple price-weighted index of 3 stocks with prices $₹100$ , $₹200$ , $₹300$ and a divisor of 3. (a) Calculate the index value. (2 marks) (b) State one key difference between a price-weighted index and a free-float market-cap-weighted index. (2 marks)

Q10. Answer briefly: (a) Name the benchmark index of the NSE and state how many companies it contains. (2 marks) (b) What is a sectoral index? Give one example. (2 marks)

END OF PAPER

Answer keyMark scheme & solutions

Q1. (3 marks)

A share (stock) is a unit of ownership in a company. (1)
Holding a share makes the holder a part-owner (shareholder) of the company. (1)
It entitles the holder to a proportional claim on the company's profits (dividends) and assets, and typically voting rights. (1)

Q2. (3 marks — 1 each, any three)

Common	Preferred
Carries voting rights	Usually no voting rights
Variable/no fixed dividend	Fixed dividend rate
Paid after preferred in liquidation	Priority over common in dividends & liquidation

Why: Preferred shares trade ownership control for income priority.

Q3. (4 marks) Dividend yield formula: $\text{Yield} = \dfrac{\text{Annual Dividend}}{\text{Market Price}} \times 100$

(a) $\dfrac{8}{200} \times 100 = 4\%$ (2)

(b) $\dfrac{8}{160} \times 100 = 5\%$ (2)

Why: Yield rises when price falls (same dividend), since return per rupee invested increases.

Q4. (4 marks) (a) Face value (par value): the nominal value assigned to a share as stated in the company's books/certificate; used for accounting and dividend declaration. (2) (b) Market value: the current trading price of the share on the exchange, determined by supply and demand. (2)

Q5. (4 marks) (a) Outstanding = Issued − Treasury = $6{,}00{,}000 - 50{,}000 = 5{,}50{,}000$ shares. (2)

(b) Issued shares are all shares the company has ever distributed to investors; outstanding shares are those currently held by investors (issued minus treasury shares held by the company). (2)

Q6. (4 marks) (a) After a 2-for-1 split: shares = $200 \times 2 = 400$ ; new face value = $₹10 / 2 = ₹5$ . (2)

(b) A split only divides each share into more units; the total number of shares × price stays the same, so total holding value is unchanged. Value before = $200 \times V$ ; after = $400 \times (V/2) = 200V$ . (2)

Q7. (4 marks)

Bonus issue: additional shares given free to existing shareholders out of reserves; no cash inflow to company; proportional holding unchanged. (2)
Rights issue: existing shareholders are offered new shares (usually at a discount) that they must pay for; raises fresh capital for the company. (2)

Q8. (4 marks)

Buyback: a company repurchases its own shares from the market/shareholders, reducing the number of outstanding shares. (2)
Two reasons (1 each): to return surplus cash to shareholders; to increase EPS/ownership concentration; to signal management confidence; to use undervalued shares efficiently. (2)

Q9. (4 marks) (a) Index $= \dfrac{100 + 200 + 300}{3} = \dfrac{600}{3} = 200$ . (2)

(b) A price-weighted index weights stocks by their price (higher-priced stocks have more influence), while a free-float market-cap-weighted index weights by publicly available market capitalization (larger free-float companies have more influence). (2)

Q10. (4 marks) (a) Nifty 50 — the NSE benchmark index — contains 50 companies. (2) (Accept: Sensex is the BSE benchmark with 30 companies if student names BSE.) (b) A sectoral index tracks the performance of stocks from one particular industry/sector; example: Nifty Bank, Nifty IT, Nifty Pharma. (2)

[
  {"claim":"Q3a dividend yield = 4%","code":"result = (8/200*100 == 4)"},
  {"claim":"Q3b dividend yield = 5%","code":"result = (8/160*100 == 5)"},
  {"claim":"Q5a outstanding shares = 550000","code":"result = (600000 - 50000 == 550000)"},
  {"claim":"Q6 split value unchanged: 400*(V/2)=200*V","code":"V=symbols('V'); result = simplify(400*(V/2) - 200*V) == 0"},
  {"claim":"Q9a price-weighted index = 200","code":"result = ((100+200+300)/3 == 200)"}
]