Question 1

What is the legal document called that is provided to potential investors and describes a new security offering?

Accepted Answer

A) Security agreement 
B) Prospectus 
C) Public statement 
D) Registration statement 
E) Formal filing 
A) Security agreement 
B) Prospectus 
C) Public statement 
D) Registration statement 
E) Formal filing

Question 2

Who determines the offer price in a Dutch auction?

Accepted Answer

A) Lead underwriter 
B) Chief financial officer of the issuing firm 
C) SEC 
D) Bidders 
E) Board of directors of the issuing firm 
A) Lead underwriter 
B) Chief financial officer of the issuing firm 
C) SEC 
D) Bidders 
E) Board of directors of the issuing firm

Question 3

Caitlyn is interested in purchasing 1,500 shares of ABC, Inc., when the shares are issued.Her broker just gave her a preliminary prospectus to review as she waits for the shares to be cleared for sale.What is the name of this prospectus?

Accepted Answer

A) Green Shoe 
B) Rights offer 
C) Red herring 
D) Spread 
E) Tombstone 
A) Green Shoe 
B) Rights offer 
C) Red herring 
D) Spread 
E) Tombstone

Question 4

Two companies have both announced IPOs at $16.50 per share.One of these is undervalued by $2, and the other is overvalued by $1.60, but you have no way of knowing which is which.You previously placed an order for 1,000 shares of each issue.If an issue is undervalued, it will be rationed, and only half your order will be filled.What profit do you now expect?

Accepted Answer

A) -$375 
B) -$600 
C) $25 
D) $150 
E) $400 
A) -$375 
B) -$600 
C) $25 
D) $150 
E) $400

Question 5

What is the advertisement, commonly found in financial newspapers, that announces a public offering of securities and provides the name of the underwriters called?

Accepted Answer

A) Prospectus 
B) Red herring 
C) Tombstone 
D) Green Shoe 
E) Underwriter's ad 
A) Prospectus 
B) Red herring 
C) Tombstone 
D) Green Shoe 
E) Underwriter's ad

Question 6

Which statement is true?

Accepted Answer

A) IPO underpricing primarily benefits a firm's pre-issue owners. 
B) IPO underpricing is a function of the underwriting spread. 
C) The more an issue is underpriced, the more it tends to be oversubscribed. 
D) Underpricing tends to discourage investors from participating in the IPO market. 
E) Undersubscribed shares generally tend to also be underpriced shares. 
A) IPO underpricing primarily benefits a firm's pre-issue owners. 
B) IPO underpricing is a function of the underwriting spread. 
C) The more an issue is underpriced, the more it tends to be oversubscribed. 
D) Underpricing tends to discourage investors from participating in the IPO market. 
E) Undersubscribed shares generally tend to also be underpriced shares.

Question 7

Which of the following have been offered as justification for IPO underpricing?
I.Young firms tend to be very risky.
II.The best IPOs are oversubscribed.
III.Underwriters like to avoid lawsuits.
IV.Underpricing benefits the existing shareholders.

Accepted Answer

A) I and III only 
B) II and IV only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV 
A) I and III only 
B) II and IV only 
C) I, II, and III only 
D) II, III, and IV only 
E) I, II, III, and IV

Question 8

The total direct costs of a debt issue, when expressed as a percentage of gross proceeds, tends to:

Accepted Answer

A) increase as the quality of the debt increases. 
B) decrease as the size of the issue decreases. 
C) decrease when the bonds are convertible rather than straight. 
D) decrease as the proceeds of the bond issue increase. 
E) be relatively the same regardless of the type or quality of the debt issue. 
A) increase as the quality of the debt increases. 
B) decrease as the size of the issue decreases. 
C) decrease when the bonds are convertible rather than straight. 
D) decrease as the proceeds of the bond issue increase. 
E) be relatively the same regardless of the type or quality of the debt issue.

Question 9

Assume the SEC approved the registration statement for a new securities issue this morning.Which one of the following statements must be true about this issue?

Accepted Answer

A) The red herrings can finally be distributed as their distribution was awaiting SEC approval. 
B) The waiting period started when the approval was received this morning. 
C) The SEC believes the issue will be a profitable investment for all purchases made at the offer price. 
D) The issuer is following all the required rules and regulations in regard to this issue. 
E) The final prospectuses have all been delivered or the SEC would not have approved the issue. 
A) The red herrings can finally be distributed as their distribution was awaiting SEC approval. 
B) The waiting period started when the approval was received this morning. 
C) The SEC believes the issue will be a profitable investment for all purchases made at the offer price. 
D) The issuer is following all the required rules and regulations in regard to this issue. 
E) The final prospectuses have all been delivered or the SEC would not have approved the issue.

Question 10

Venture capital is most apt to be the source of funding for a:

Accepted Answer

A) bankruptcy reorganization. 
B) global expansion of an established firm. 
C) new, high-risk venture. 
D) seasonal production costs. 
E) daily operations for an established, profitable firm. 
A) bankruptcy reorganization. 
B) global expansion of an established firm. 
C) new, high-risk venture. 
D) seasonal production costs. 
E) daily operations for an established, profitable firm.

Question 11

Mushroom Veggie Meats would like to sell 3,000 shares of stock using a Dutch auction.The bids received are as follows:   What is the total amount the issuer will receive from this auction? Ignore costs.

Accepted Answer

A) $128,600 
B) $126,000 
C) $127,400 
D) $125,000 
E) $129,600 
A) $128,600 
B) $126,000 
C) $127,400 
D) $125,000 
E) $129,600

Question 12

High Mountain Gear issued 385,000 shares of stock last week.The underwriters charged a spread of 7.2 percent in exchange for agreeing to a firm commitment.The legal and accounting fees were $302,000.The company incurred $39,000 in indirect costs.The offer price was $17 a share.Within the day of trading, the stock was selling for $18.80 a share.What was the flotation cost as a percentage of the funds raised?

Accepted Answer

A) 31.90 percent 
B) 35.78 percent 
C) 32.51 percent 
D) 26.26 percent 
E) 29.08 percent 
A) 31.90 percent 
B) 35.78 percent 
C) 32.51 percent 
D) 26.26 percent 
E) 29.08 percent

Question 13

Space Tours wants to do an IPO but is not comfortable that underwriters will set the most optimal offer price for the securities.Which one of the following might the firm consider to address this uncertainty?

Accepted Answer

A) Extended quiet period 
B) Extended lockup period 
C) Best efforts underwriting 
D) Dutch auction underwriting 
E) Standby underwriting 
A) Extended quiet period 
B) Extended lockup period 
C) Best efforts underwriting 
D) Dutch auction underwriting 
E) Standby underwriting

Question 14

Mimi placed an order with her broker to purchase 500 shares of each of three IPOs that are being released soon.Each IPO has an offer price of $15 a share.The number of shares allocated to her along with the closing stock price at the end of the first day of trading for each stock, are as follows:   What is her total profit or loss on these three stocks as of the end of the first day of trading for each stock?

Accepted Answer

A) -$500 
B) -$100 
C) -$50 
D) $0 
E) $500 
A) -$500 
B) -$100 
C) -$50 
D) $0 
E) $500

Question 15

Which statement is true?

Accepted Answer

A) Firms often pay higher interest rates on term loans than on public issues of debt. 
B) The only difference between a term loan and a private placement is the size of the issue. 
C) A prospectus is required for equity issues but not for debt issues. 
D) The flotation costs of issuing debt tend to be more expensive than for issuing equity. 
E) Direct long-term loans must be registered with the SEC. 
A) Firms often pay higher interest rates on term loans than on public issues of debt. 
B) The only difference between a term loan and a private placement is the size of the issue. 
C) A prospectus is required for equity issues but not for debt issues. 
D) The flotation costs of issuing debt tend to be more expensive than for issuing equity. 
E) Direct long-term loans must be registered with the SEC.

Question 16

An average individual investor who participates in an IPO:

Accepted Answer

A) frequently earns high returns when shares are undersubscribed. 
B) generally receives his or her full allocation of shares if oversubscription occurs. 
C) often encounters the "winner's curse." 
D) is protected from financial loss by the Green Shoe provision. 
E) is subject to the lockup provision. 
A) frequently earns high returns when shares are undersubscribed. 
B) generally receives his or her full allocation of shares if oversubscription occurs. 
C) often encounters the "winner's curse." 
D) is protected from financial loss by the Green Shoe provision. 
E) is subject to the lockup provision.

Question 17

Robert placed an order with his broker to purchase 500 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $21 a share.The number of shares allocated to Robert, along with the closing stock price at the end of the first day of trading for each stock, are as follows:   What is his total profit or loss on these three stocks as of the end of the first day of trading for each stock?

Accepted Answer

A) $639.50 
B) -$369.50 
C) -1,350.00 
D) $572.00 
E) $1,370 
A) $639.50 
B) -$369.50 
C) -1,350.00 
D) $572.00 
E) $1,370

Question 18

A lockup agreement ensures:

Accepted Answer

A) the lead underwriter maintains an economic interest in the IPO it is managing. 
B) the issuer of new securities receives a minimally agreed upon amount from the issue. 
C) no research reports are issued during the waiting period. 
D) company insiders maintain an economic interest in the issuer of an IPO for a minimum period of time. 
E) an IPO is not underpriced by more than five percent. 
A) the lead underwriter maintains an economic interest in the IPO it is managing. 
B) the issuer of new securities receives a minimally agreed upon amount from the issue. 
C) no research reports are issued during the waiting period. 
D) company insiders maintain an economic interest in the issuer of an IPO for a minimum period of time. 
E) an IPO is not underpriced by more than five percent.

Question 19

Deep Water Marina has 12,000 shares of stock outstanding that were sold to the general public last year.The firm has just decided to issue an additional 4,000 shares and will make these shares available to the firm's current shareholders before making any offer to the general public.Which type of offer is this?

Accepted Answer

A) General cash offer 
B) Rights offer 
C) In-house offering 
D) Private placement 
E) Initial public offering 
A) General cash offer 
B) Rights offer 
C) In-house offering 
D) Private placement 
E) Initial public offering

Question 20

AJ's Glass Works just arranged a three-year direct business loan.Which one of the following terms matches this loan arrangement?

Accepted Answer

A) Term loan 
B) Private placement 
C) Rights offer 
D) Seasoned offer 
E) Shelf offer 
A) Term loan 
B) Private placement 
C) Rights offer 
D) Seasoned offer 
E) Shelf offer

What is the legal document called that is provided to potential investors and describes a new security offering?

Who determines the offer price in a Dutch auction?

Caitlyn is interested in purchasing 1,500 shares of ABC, Inc., when the shares are issued.Her broker just gave her a preliminary prospectus to review as she waits for the shares to be cleared for sale.What is the name of this prospectus?

What is the advertisement, commonly found in financial newspapers, that announces a public offering of securities and provides the name of the underwriters called?

Which statement is true?

Which of the following have been offered as justification for IPO underpricing? I.Young firms tend to be very risky. II.The best IPOs are oversubscribed. III.Underwriters like to avoid lawsuits. IV.Underpricing benefits the existing shareholders.

The total direct costs of a debt issue, when expressed as a percentage of gross proceeds, tends to:

Assume the SEC approved the registration statement for a new securities issue this morning.Which one of the following statements must be true about this issue?

Venture capital is most apt to be the source of funding for a:

Mushroom Veggie Meats would like to sell 3,000 shares of stock using a Dutch auction.The bids received are as follows: What is the total amount the issuer will receive from this auction? Ignore costs.

Space Tours wants to do an IPO but is not comfortable that underwriters will set the most optimal offer price for the securities.Which one of the following might the firm consider to address this uncertainty?

Which statement is true?

An average individual investor who participates in an IPO:

A lockup agreement ensures:

AJ's Glass Works just arranged a three-year direct business loan.Which one of the following terms matches this loan arrangement?

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters

Exam 15: Raising Capital

What is the legal document called that is provided to potential investors and describes a new security offering?

Who determines the offer price in a Dutch auction?

Caitlyn is interested in purchasing 1,500 shares of ABC, Inc., when the shares are issued.Her broker just gave her a preliminary prospectus to review as she waits for the shares to be cleared for sale.What is the name of this prospectus?

What is the advertisement, commonly found in financial newspapers, that announces a public offering of securities and provides the name of the underwriters called?

Which statement is true?

Which of the following have been offered as justification for IPO underpricing? I.Young firms tend to be very risky. II.The best IPOs are oversubscribed. III.Underwriters like to avoid lawsuits. IV.Underpricing benefits the existing shareholders.

The total direct costs of a debt issue, when expressed as a percentage of gross proceeds, tends to:

Assume the SEC approved the registration statement for a new securities issue this morning.Which one of the following statements must be true about this issue?

Venture capital is most apt to be the source of funding for a:

Mushroom Veggie Meats would like to sell 3,000 shares of stock using a Dutch auction.The bids received are as follows: What is the total amount the issuer will receive from this auction? Ignore costs.

Space Tours wants to do an IPO but is not comfortable that underwriters will set the most optimal offer price for the securities.Which one of the following might the firm consider to address this uncertainty?

Which statement is true?

An average individual investor who participates in an IPO:

A lockup agreement ensures:

AJ's Glass Works just arranged a three-year direct business loan.Which one of the following terms matches this loan arrangement?

Introduction to Financial Management

Financial Statements, Taxes, and Cash Flow

Working With Financial Statements

Introduction to Valuation: the Time Value of Money

Discounted Cash Flow Valuation

Interest Rates and Bond Valuation

Equity Markets and Stock Valuation

Net Present Value and Other Investment Criteria

Making Capital Investment Decisions

Some Lessons From Capital Market History

Risk and Return

Cost of Capital

Leverage and Capital Structure

Dividends and Dividend Policy

Short-Term Financial Planning

Working Capital Management

International Aspects of Financial Management

Filters