Exam 19: Using Securities Markets for Financing and Investing Opportunities

The prospectus is summarization of the results of detailed financial documents that a firm files with the SEC prior to being given approval to issue securities.

With everything else constant, investors prefer a bond issued with a sinking fund compared to a bond without a sinking fund.

Mini-Case Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million. The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company. -One funding source under consideration is the issuance of $150 million worth of corporate bonds. A financial advisor predicted that in order for the fast growing company to attract investors, it would have to put up collateral to back up the bond issue. The type of bond the financial advisor suggests is

The investor will receive the face value of the bond on the ________ date.

If a stock's closing price for the day is 32.47, the stock's price in U.S. dollars would be

Issuing new stock increases the firm's outstanding debt on their balance sheet.

Stock certificates represent evidence of ownership in an organization. A stock certificate contains which of the following?

John invested in a new issue corporate bond on the primary market for $1,000, with a coupon rate of 7%, and a maturity date of 2025. The bond was held in his brokerage account electronically, so he did not think about it on a daily basis. In 2020, he thought about selling the bond on the secondary market to help pay for his school tuition. At that time, interest rates had climbed to 8.5%. This was great news for John because now he could sell his bond for more than the principal amount he would receive in 2025.

Daily reporting of the Dow Jones Industrial Average serves to

A(n) ________ refers to the first public offering of a corporation's stock.

With recent mergers of stock exchanges, beginning with the New York Stock Exchange merger with Archipelago, and subsequently with Euronext and eventually the Intercontinental Exchange (ICE) in Atlanta purchase of the NYSE Euronext for $8.2 billion. Most exchange floors are symbolic because trades today usually take place on computers.

Securities markets provide private investors a place to buy and sell stocks, bonds, and mutual funds.

Stock market circuit breakers stop stock trading for a short time when the stock market experiences a significant drop in stock values.

When investors purchase ________ stock, they receive a priority claim in the payment of dividends, as well as assets if the business is liquidated. However, these investors do not have voting rights.

Only government employees represent institutional investors.

Both stocks and bonds represent temporary sources of funding for a firm. Eventually they must be repaid.

Juanita owns stock in Elite Technologies. Her stock provides a priority claim on dividend payments and on the firm's assets in the event of liquidation. However, her ________ stock ownership does not offer her voting rights.

After owning a Maplewood Company bond for five years, Michelle exercised an option that allowed her to exchange her bond for 20 shares of the company stock. Michelle owned a

Tee Time Golf Resort found that Jordan Spieth wants to put his name on golf course designs. However, for any course to be acceptable, it will cost at least $20 million to build. The plan is to purchase real estate for four new golf resorts. Proceeding with their venture, the owners have calculated that they will need approximately $100 million. But putting together an IPO is another matter. After meeting with their investment banker, they believe that investors will be willing to pay $22/share for the IPO. As the ________ for this issue, the investment bank requires 3% of the revenues generated by the sale. Tee Time will need to issue ________ shares in order to have the $100 million they need to proceed with their plan.

An investor places a ________ order with a broker to buy a particular stock at a specific price, if and when that price becomes available.