Investing in Australian shares

• A. The New York Stock Exchange
• B. The Australian Securities Exchange (ASX) ✓
• C. The Sydney Futures Exchange
• D. The Reserve Bank of Australia

Why: The Australian Securities Exchange (ASX), based in Sydney, is Australia's primary securities exchange, where shares of listed companies are bought and sold. The Sydney Futures Exchange is a separate derivatives market, and the RBA is the central bank, not a trading venue.

• A. You lend money to the company that must be repaid with interest
• B. You own a small part of that company ✓
• C. You become an employee of the company
• D. You are guaranteed a fixed annual payment by the company

Why: A share represents partial ownership of a company, giving the shareholder a claim on a portion of its assets and earnings. Lending money with interest describes a bond or loan, not a share, and shareholders are not guaranteed fixed payments.

• A. The fee paid to a broker for executing a trade
• B. A payment made by a company to its shareholders, usually from profits ✓
• C. The price difference between the buy and sell price of a share
• D. A tax levied on share ownership

Why: A dividend is a distribution of a company's profits to its shareholders, often paid in cash and sometimes with franking credits in Australia. Broker fees, bid-ask spreads, and taxes are different concepts.

• A. A list of the 200 newest companies listed on the ASX
• B. A measure of the performance of the 200 largest companies listed on the ASX by market capitalisation ✓
• C. The total number of shares traded on the ASX each day
• D. A government bond rate for 200-day maturities

Why: The S&P/ASX 200 tracks the performance of the 200 largest listed companies on the ASX by market capitalisation and is widely used as a benchmark for the Australian sharemarket. It is not a list of new listings, a trading volume measure, or a bond rate.

• A. The total amount of cash the company holds in the bank
• B. The total value of all its issued shares, calculated as share price multiplied by number of shares on issue ✓
• C. The amount of money the company borrowed from investors
• D. The company's annual revenue

Why: Market capitalisation equals the current share price multiplied by the total number of shares on issue, giving the market's overall valuation of the company. Cash holdings, debt, and revenue are different financial measures.

• A. Australian Securities Exchange ✓
• B. Australian Share Exchange
• C. Australasian Stock Index
• D. Australian Stock Xchange Group

Why: ASX stands for Australian Securities Exchange, the main securities exchange in Australia where shares, ETFs, and other financial products are listed and traded.

• A. All Ordinaries
• B. S&P/ASX 200 ✓
• C. ASX Small Ordinaries
• D. S&P/ASX 50

Why: The S&P/ASX 200 tracks the 200 largest companies listed on the ASX by market capitalisation and is widely used as a benchmark for the Australian sharemarket.

• A. Same day (T+0)
• B. Two business days (T+2) ✓
• C. Five business days (T+5)
• D. Thirty days (T+30)

Why: ASX equity trades settle two business days after the trade date (T+2), meaning the buyer receives the shares and the seller receives the cash two business days later.

• A. The price at which a seller is willing to sell
• B. The highest price a buyer is willing to pay for a share ✓
• C. The last price at which the share traded
• D. The average price over the trading day

Why: The bid price is the highest price a buyer is currently willing to pay for a share. The difference between the bid and the ask (offer) price is called the spread.

• A. 9:00am to 4:00pm AEST/AEDT
• B. 10:00am to 4:00pm AEST/AEDT ✓
• C. 10:00am to 6:00pm AEST/AEDT
• D. 24 hours a day, five days a week

Why: The ASX regular trading session runs from 10:00am to 4:00pm Sydney time on business days, with pre-open and closing auction phases surrounding it.

• A. Income statement
• B. Balance sheet ✓
• C. Cash flow statement
• D. Statement of changes in equity

Why: The balance sheet is a snapshot of what a company owns (assets), owes (liabilities), and the residual value belonging to shareholders (equity) at a single date, such as 30 June for many ASX-listed companies.

• A. Balance sheet
• B. Income statement ✓
• C. Director's report
• D. Auditor's independent report

Why: The income statement (also called the profit and loss statement) summarises revenue and expenses over a period, arriving at net profit or loss after tax.

• A. The total cash a company holds
• B. The company's total debt divided by its assets
• C. The portion of a company's profit allocated to each ordinary share ✓
• D. The share price multiplied by the number of shares on issue

Why: EPS is calculated by dividing net profit attributable to ordinary shareholders by the weighted average number of ordinary shares on issue, helping investors compare profitability across companies of different sizes.

• A. Operating activities ✓
• B. Investing activities
• C. Financing activities
• D. Dividend activities

Why: Operating activities cover cash flows from day-to-day business such as receipts from customers and payments to suppliers and employees. Investing covers asset purchases or sales, and financing covers borrowing, repayments, and share issues or dividends.

• A. Because profit is always an accurate measure of cash
• B. Because profit can include non-cash items, so cash flow shows whether earnings are actually converting into cash ✓
• C. Because cash flow is required by the ASX to be higher than profit
• D. Because positive cash flow guarantees the share price will rise

Why: Accrual accounting can record revenue and expenses before cash changes hands, so a company may report profit while struggling to collect cash. Persistent positive operating cash flow suggests earnings quality and the ability to fund operations and dividends.

• A. The company's total debt relative to its assets
• B. How much investors are paying for each dollar of a company's earnings ✓
• C. The percentage of profit paid out as dividends
• D. The growth rate of the company's share price over one year

Why: The P/E ratio divides the share price by earnings per share, showing how many dollars investors pay for each dollar of annual earnings.

• A. 0.05
• B. 20 ✓
• C. 80
• D. 2

Why: P/E = share price / earnings per share = $40 / $2.00 = 20. Investors are paying $20 for every $1 of annual earnings.

• A. A loan the company takes out from a bank
• B. A portion of company profits paid to shareholders, usually in cash ✓
• C. The price difference between buying and selling a share
• D. A fee charged by the ASX for listing a company

Why: Dividends are distributions of company profits to shareholders, commonly paid in cash, and in Australia are often fully franked, which carries tax credits.

• A. The share price rose 4% over the year
• B. The company's profits grew by 4%
• C. For every $100 invested, the investor receives about $4 in annual dividends ✓
• D. The investor owns 4% of the company

Why: Dividend yield is annual dividends per share divided by the share price. A 4% yield means roughly $4 of dividends per $100 invested, based on the current price.

• A. The company is certain to pay high dividends
• B. Investors expect strong future earnings growth, or the shares may be expensive relative to current earnings ✓
• C. The company has no debt
• D. The company is about to be delisted from the ASX

Why: A high P/E often reflects expectations of higher future earnings growth, but it can also mean shares are overpriced relative to current earnings, so context matters.

• A. A fee charged by the ASX when a company pays a dividend
• B. A tax credit attached to dividends representing company tax already paid on the profits distributed ✓
• C. A discount on brokerage for buying Australian shares
• D. A government grant paid to shareholders of listed companies

Why: Franking credits represent the Australian corporate tax (currently 30%, or 25% for base rate entities) that a company has already paid on the profits it distributes as dividends. They are passed on to shareholders so the same profit is not taxed twice.

• A. The company has paid tax at the full corporate rate on all profits underlying the dividend ✓
• B. The dividend is paid in shares rather than cash
• C. The dividend is exempt from all income tax for the shareholder
• D. The company has no franking credits attached to the dividend

Why: A fully franked dividend carries franking credits equal to the full corporate tax rate on the profits distributed, meaning the company has paid tax on all of the underlying profit. Unfranked dividends carry no credits, and partially franked dividends carry some.

• A. $210
• B. $300 ✓
• C. $700
• D. $1,000

Why: The gross-up formula is cash dividend divided by (1 minus corporate tax rate). $700 / 0.70 = $1,000 grossed-up dividend, and the franking credit is $1,000 minus $700 = $300. The investor includes $1,000 in assessable income and can claim the $300 as a tax offset.

• A. A high-income earner whose marginal tax rate is 45%
• B. A company that pays tax at the corporate rate
• C. A tax-free superannuation fund in the pension phase or a low-income individual with little other tax payable ✓
• D. A non-resident investor holding Australian shares

Why: If franking credits exceed the tax payable on the investor's income, the excess is refunded. This benefits investors with little or no tax liability, such as low-income individuals and tax-free pension-phase super funds. High earners typically have franking credits fully absorbed by their tax bill, and non-residents generally cannot claim them.

• A. Fully franked dividends are always higher in cash value
• B. Franking credits reduce the tax payable on the dividend, improving after-tax returns ✓
• C. Unfranked dividends are taxed at a higher rate than capital gains
• D. Fully franked dividends avoid the need to lodge a tax return

Why: Franking credits offset the investor's tax on the dividend income, so the same cash amount delivers a higher after-tax return when it is fully franked. This is a key reason Australian shares with strong franking are attractive to local investors.

• A. It guarantees higher returns than holding a single stock
• B. It reduces the impact of poor performance in any one sector on the overall portfolio ✓
• C. It eliminates all investment risk
• D. It reduces the number of brokerage fees to zero

Why: Diversification spreads risk so that a downturn in one sector is less likely to devastate the whole portfolio. It does not guarantee higher returns or eliminate risk entirely, and it does not remove trading costs.

• A. A list of the 10 largest companies in Australia
• B. A measure of the performance of the 200 largest companies listed on the Australian Securities Exchange by market capitalisation ✓
• C. The total value of all shares traded on the ASX in a year
• D. A government bond index for Australian states

Why: The S&P/ASX 200 tracks the 200 largest ASX-listed companies by market capitalisation and is widely used as a benchmark for Australian share market performance.

• A. Mining exploration
• B. Consumer staples such as supermarkets ✓
• C. Speculative technology start-ups
• D. Discretionary luxury retail

Why: Defensive sectors such as consumer staples tend to hold up better in economic downturns because people keep buying essential goods regardless of the economy.

• A. International shares are always cheaper to buy
• B. The Australian market is heavily concentrated in a few sectors, such as banking and mining ✓
• C. Australian companies are not allowed to be listed on the ASX
• D. Foreign shares pay no tax

Why: The ASX has a significant weighting toward financials and resources, so holding international shares adds exposure to sectors and economies not well represented locally.

• A. A position size that keeps any one stock from dominating overall portfolio risk ✓
• B. Holding only the single highest-performing stock
• C. Investing the entire portfolio in one company's shares
• D. Matching the weight of the company's share price on the ASX

Why: Sensible diversification limits the size of any single holding so that one company's failure does not cause outsized losses to the whole portfolio.

• A. Putting all of your money into a single high-performing company
• B. Spreading investments across different assets, sectors, or companies to reduce the impact of any one holding performing poorly
• C. Holding only cash to avoid any possibility of losses
• D. Buying shares only when the market is rising

• A. To guarantee a profit on every trade
• B. To automatically sell a share if its price falls to a set level, limiting potential losses
• C. To increase the number of shares you own
• D. To avoid paying brokerage fees

• A. Day trading
• B. Short-term speculation
• C. Long-term investing
• D. Market timing

• A. It involves investing a large lump sum on a single day to beat the market
• B. It involves investing a fixed amount at regular intervals, which can reduce the impact of share price volatility
• C. It guarantees that you will never lose money on share investments
• D. It is only suitable for investors who already own a large portfolio

• A. It contains only the 200 cheapest shares on the market
• B. It represents the 200 largest companies listed on the Australian Securities Exchange by market capitalisation
• C. It includes only government bonds and cash
• D. It is updated once every ten years