1) Which one of the following is not resulted in capital formation?

a Mr. X buys the bonds of a company which develops new ports out of his savings

b Mr. X subscribes to equity shares of an airline company in their IPO

c Mr. X buys a piece of land to grow organic vegitables

d Mr. X buys gold on the expectation that Gold price is likely to increase.

2) A typical equity funding cycle for a start-up is

a Venture Capital, Private Equity, Angel Investment and IPO

b Angel Investment, Venture Capital, Private Equity and IPO

c Angel Investment, Venture Capital, Commercial Bank and IPO

d Financial Institutions, Venture Capital, IPO and Commercial Bank

3) A company issues Non-convertible bond with Equity Warrants. This security is equal to

a Preferred stock

b Call Option

c Convertible Bond

d Differential Voting Rights Equity shares

Answer:

1). C. Mr. X buys a piece of land to grow organic vegitables

2). B. Angel Investment, Venture Capital, Private Equity and IPO

3). C. Convertible Bond

Step-by-step explanation

1). Mr. X buying a piece of land to grow organic vegitables does not result in capital formation as it will be probably for consumption but buying the bonds of a company,subscribing to equity shares in an in their IPO and buying gold on the expectation that Gold price is likely to increase will result capital formation

 2). A typical equity funding cycle for a start-up is Angel Investment, Venture Capital, Private Equity and IPO

• Angel Investment is the initial investment into the start-up and is usually provided the founders, family members and friends. Is also called seed capital
• Venture Capital is the capital offered to start -ups which has a shown a high growth potential and which has a well demonstrated development strategy
• Private Equity is the capital offered to business after the first two capital. Here the business is already successful thus the funding is only for its expansion strategy or for development of new products
• In case the business needs additional funds to achieve all its goals, it can now raise funds through an IPO

3). The convertible debentures are debentures that gives the holder the right to convert them into equity shares on the expiry of the stated period. The non-convertible debentures issued with warrants also gives the holder the right to get the equity shares stated in the warrant after the expiry of a specified period at a price stated in the warrant. Therefore, a company issue of Non-convertible bond with Equity Warrants is equal to Convertible Bond

A call option is an option contract the seller or buyer has the right but not the obligation to sell or buy a specified quantity of a security at a specified price (Strike price) after a stated period. 

Differential Voting Rights Equity shares is Equity shares with varying degree of voting rights.

Preferred stock is the stock that has priority over Ordinary stock when it comes to repayment of dividends and during liqiuidation