Exam 10: Equity Markets

Convertible preferred stock can be exchanged into common stock at a predetermined ratio.

The underwriter's spread is typically inversely related to the size of the primary offering.

A publicly traded company issuing additional shares of common stock does it through an IPO.

List and briefly describe the four types of secondary equity markets.

What are the advantages of investing in American Depository Receipts (ADRs) compared to direct investment into foreign equities?

What are the pros and cons of high frequency trading (HFT) and dark pools? Do they improve market efficiency? Explain.

Preferred stockholders have the same voting rights as common shareholders.

Limited liability of stockholders protects them from losses on their stock portfolio.

Preferred stockholders have a claim junior to common stock but senior to bondholders.

Equity capital can be raised through the money market and the NYSE bond market.

A market with breadth has a large number of diverse investors.

Preferred stocks have more variable prices than common stock.

High frequency trading is designed to help market trades by individual investors.

The Dow Jones Industrial Average is a price-weighted index.

Shelf registration permits a corporation to preregister several types of security issues and sell them at any time within the subsequent two years.

The most common method of selling stock to the public is through a rights offering.

Common stockholders enjoy limited liability, which means any losses in stock value are covered by the company.

At the NYSE, limit orders are usually entered into the specialist's limit order book.

The secondary market for capital market securities is important because it provides funds directly to deficit spending units.

The New York Stock Exchange is an example of a secondary market.