Question 1

The sale of new common stock at a price greater than par value will affect which balance sheet accounts? (Choose the most complete answer.)

Accepted Answer

A)  Common stock, paid-in capital, retained earnings. 
B)  Assets, common stock, paid-in capital. 
C)  Liabilities, common equity. 
D)  Common stock, retained earnings. 
E)  Common stock, paid-in capital. 
A)  Common stock, paid-in capital, retained earnings. 
B)  Assets, common stock, paid-in capital. 
C)  Liabilities, common equity. 
D)  Common stock, retained earnings. 
E)  Common stock, paid-in capital.

Question 2

An American Depository Receipt (ADR) represents

Accepted Answer

A)  Debt sold by a foreign borrower that is denominated in the currency of the country where it is sold. 
B)  Stock of foreign companies that is sold directly to investors in the United States. 
C)  Equity instruments of one country that are sold in another country. 
D)  The certificates that represent ownership in foreign companies that are sold in the United States. 
E)  Certificates representing ownership in stocks of foreign companies that are held in trust by a bank located in the country the stock is traded. 
A)  Debt sold by a foreign borrower that is denominated in the currency of the country where it is sold. 
B)  Stock of foreign companies that is sold directly to investors in the United States. 
C)  Equity instruments of one country that are sold in another country. 
D)  The certificates that represent ownership in foreign companies that are sold in the United States. 
E)  Certificates representing ownership in stocks of foreign companies that are held in trust by a bank located in the country the stock is traded.

Question 3

A ____ is an agreement to between two firms where one firm agrees to sell some of its financial assets to another and then buy the financial assets back from that firm at a later time

Accepted Answer

A)  buy back 
B)  call option 
C)  repurchase agreement 
D)  put option 
A)  buy back 
B)  call option 
C)  repurchase agreement 
D)  put option

Question 4

Corporations issue and purchase a variety of financial securities for all of the following reasons EXCEPT

Accepted Answer

A)  raise capital 
B)  hedge against risk 
C)  alter the capital structure of the firm 
D)  all of the above are reasons to issue or purchase financial securities 
A)  raise capital 
B)  hedge against risk 
C)  alter the capital structure of the firm 
D)  all of the above are reasons to issue or purchase financial securities

Question 5

All of the following may serve to reduce the coupon rate that would otherwise be required on a bond issued at par, except a

Accepted Answer

A)  Sinking fund. 
B)  Restrictive covenant. 
C)  Call provision. 
D)  Change in rating from Aa to Aaa. 
E)  None of the above (all may reduce the required coupon rate). 
A)  Sinking fund. 
B)  Restrictive covenant. 
C)  Call provision. 
D)  Change in rating from Aa to Aaa. 
E)  None of the above (all may reduce the required coupon rate).

Question 6

Which of the following factors does not influence a firm's long-term financing decisions?

Accepted Answer

A)  Its target capital structure. 
B)  Maturity matching considerations. 
C)  Comparative costs of financing alternatives. 
D)  Availability of collateral. 
E)  All of the above factors may influence a firm's long-term financing decisions. 
A)  Its target capital structure. 
B)  Maturity matching considerations. 
C)  Comparative costs of financing alternatives. 
D)  Availability of collateral. 
E)  All of the above factors may influence a firm's long-term financing decisions.

Question 7

The Eurodollar market is essentially a long-term market; most loans and deposits have maturities of longer than one year.

Accepted Answer

A) True 
 B)False

Question 8

LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to U.S.corporations.

Accepted Answer

A) True 
 B)False

Question 9

An investor purchased a call option that allows her to purchase 100 shares of Dell Computer common stock for $45 per share any time during the next six months.The price she paid for the option was $2.50 per share, or $250 total, and the current market price of Dell's stock is $42.50.If the price of Dell increases to $44.50 and the investor decides to exercise it, what will be the gain or loss that results from the option position that was held? Ignore taxes and commissions.

Accepted Answer

A)  $200 gain 
B)  $300 loss 
C)  $50 loss 
D)  $450 loss 
E)  None of the above. 
A)  $200 gain 
B)  $300 loss 
C)  $50 loss 
D)  $450 loss 
E)  None of the above.

Question 10

A proxy fight involves a battle by a shareholder or group of shareholders who seek to change the investment policy of the firm.If the proxy group is successful, current management retains control of the firm but the proxy group dictates what investments the firm makes.

Accepted Answer

A) True 
 B)False

Question 11

Firms generally do not call their convertibles unless their conversion value is greater than their call price.

Accepted Answer

A) True 
 B)False

Question 12

Because junk bonds are such high-risk instruments, the returns on such bonds aren't very high and the existence of this market detracts from social welfare.

Accepted Answer

A) True 
 B)False

Question 13

The preemptive right is important to shareholders because it

Accepted Answer

A)  Allows management to sell additional shares below the current market price. 
B)  Protects the current shareholders against dilution of ownership interests. 
C)  Is included in every corporate charter. 
D)  Will result in higher dividends per share. 
E)  The preemptive right is not important to shareholders. 
A)  Allows management to sell additional shares below the current market price. 
B)  Protects the current shareholders against dilution of ownership interests. 
C)  Is included in every corporate charter. 
D)  Will result in higher dividends per share. 
E)  The preemptive right is not important to shareholders.

Question 14

Founders' shares is a type of classified stock where the shares are owned by the firm's founders and they retain the sole voting rights to those shares but have restricted dividends for a specified time period.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following statements is correct?

Accepted Answer

A)  All common stock must have full voting rights. 
B)  While firms are allowed to issue different classes of common stock, the Securities and Exchange Commission (SE
C)  requires that each class have the same dividend privileges. 
C)  The New York Stock Exchange (NYS
E)  allows firms with dual class stock to be listed on the exchange. 
D)  In order to increase a stock's liquidity, investment bankers generally require that insiders sell some percentage of their shares after a firm has undergone an initial public offering (IPO). 
E)  When a firm raises capital, investment bankers enter into a "best efforts" arrangement which guarantees that the securities will be sold. 
A)  All common stock must have full voting rights. 
B)  While firms are allowed to issue different classes of common stock, the Securities and Exchange Commission (SE
C)  requires that each class have the same dividend privileges. 
C)  The New York Stock Exchange (NYS
E)  allows firms with dual class stock to be listed on the exchange. 
D)  In order to increase a stock's liquidity, investment bankers generally require that insiders sell some percentage of their shares after a firm has undergone an initial public offering (IPO). 
E)  When a firm raises capital, investment bankers enter into a "best efforts" arrangement which guarantees that the securities will be sold.

Question 16

The "preferred" feature of preferred stock means that it normally will generate a higher total return for the stockholder than common stock.

Accepted Answer

A) True 
 B)False

Question 17

When a corporation's shares are owned by a few individuals who are associated with the firm's management, we say that the firm is "closely held."

Accepted Answer

A) True 
 B)False

Question 18

Which of the following statements concerning common stock and the investment banking process is false?

Accepted Answer

A)  The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue. 
B)  If a firm sells 1,000,000 new shares of Class B stock, the transaction occurs in the primary market. 
C)  Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and status probably outweigh the additional costs to the firm. 
D)  Stockholders have the right to elect the firm's directors, who in turn select the officers who manage the business.If stockholders are dissatisfied with management's performance, an outside group may ask the stockholders to vote for it in an effort to take control of the business.This action is called a margin call. 
E)  A large issue of new stock could cause the stock price to fall.This loss is called "market pressure," and it is treated as a flotation cost because it is a cost associated with the new issue. 
A)  The preemptive right gives each existing common stockholder the right to purchase his or her proportionate share of a new stock issue. 
B)  If a firm sells 1,000,000 new shares of Class B stock, the transaction occurs in the primary market. 
C)  Listing a large firm's stock is often considered to be beneficial to stockholders because the increases in liquidity and status probably outweigh the additional costs to the firm. 
D)  Stockholders have the right to elect the firm's directors, who in turn select the officers who manage the business.If stockholders are dissatisfied with management's performance, an outside group may ask the stockholders to vote for it in an effort to take control of the business.This action is called a margin call. 
E)  A large issue of new stock could cause the stock price to fall.This loss is called "market pressure," and it is treated as a flotation cost because it is a cost associated with the new issue.

Question 19

Which of the following statements is correct?

Accepted Answer

A)  A warrant is basically a long-term option that enables the holder to sell common stock back to the firm at an agreed upon price, at a specified time in the future. 
B)  Generally, warrants are distributed along with preferred stock in order to make the preferred stock less risky. 
C)  If a company issuing coupon paying debt wanted to reduce the cash outflows associated with the coupon payments, it could issue warrants with the debt to accomplish this. 
D)  One of the disadvantages of warrants to the issuing firm is that they can be detachable and can be traded separately from the debt with which they are issued. 
E)  Warrants are attractive to investors because when they are issued with stock, investors receive dividends on the warrants they own as well as on the underlying stock. 
A)  A warrant is basically a long-term option that enables the holder to sell common stock back to the firm at an agreed upon price, at a specified time in the future. 
B)  Generally, warrants are distributed along with preferred stock in order to make the preferred stock less risky. 
C)  If a company issuing coupon paying debt wanted to reduce the cash outflows associated with the coupon payments, it could issue warrants with the debt to accomplish this. 
D)  One of the disadvantages of warrants to the issuing firm is that they can be detachable and can be traded separately from the debt with which they are issued. 
E)  Warrants are attractive to investors because when they are issued with stock, investors receive dividends on the warrants they own as well as on the underlying stock.

Question 20

Sharon has a convertible bond with a face value of $1,000 that can be converted into 40 shares of common stock of Mountain Ice Corporation.If the current price of the stock is $20, what is the conversion price of the bond?

Accepted Answer

A)  $20 
B)  $50 
C)  $800 
D)  $500 
E)  None of the above. 
A)  $20 
B)  $50 
C)  $800 
D)  $500 
E)  None of the above.

The sale of new common stock at a price greater than par value will affect which balance sheet accounts? (Choose the most complete answer.)

An American Depository Receipt (ADR) represents

A ____ is an agreement to between two firms where one firm agrees to sell some of its financial assets to another and then buy the financial assets back from that firm at a later time

Corporations issue and purchase a variety of financial securities for all of the following reasons EXCEPT

All of the following may serve to reduce the coupon rate that would otherwise be required on a bond issued at par, except a

Which of the following factors does not influence a firm's long-term financing decisions?

The Eurodollar market is essentially a long-term market; most loans and deposits have maturities of longer than one year.

LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to U.S.corporations.

A proxy fight involves a battle by a shareholder or group of shareholders who seek to change the investment policy of the firm.If the proxy group is successful, current management retains control of the firm but the proxy group dictates what investments the firm makes.

Firms generally do not call their convertibles unless their conversion value is greater than their call price.

Because junk bonds are such high-risk instruments, the returns on such bonds aren't very high and the existence of this market detracts from social welfare.

The preemptive right is important to shareholders because it

Founders' shares is a type of classified stock where the shares are owned by the firm's founders and they retain the sole voting rights to those shares but have restricted dividends for a specified time period.

Which of the following statements is correct?

The "preferred" feature of preferred stock means that it normally will generate a higher total return for the stockholder than common stock.

When a corporation's shares are owned by a few individuals who are associated with the firm's management, we say that the firm is "closely held."

Which of the following statements concerning common stock and the investment banking process is false?

Which of the following statements is correct?

Sharon has a convertible bond with a face value of $1,000 that can be converted into 40 shares of common stock of Mountain Ice Corporation.If the current price of the stock is $20, what is the conversion price of the bond?

An Overview of Finance

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Business Organizations and the Tax Environment

Analysis of Financial Statements

Financial Planning and Control

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment Concepts

Security Valuation and Selection

Filters

Exam 2: Financial Assets Instruments

The sale of new common stock at a price greater than par value will affect which balance sheet accounts? (Choose the most complete answer.)

An American Depository Receipt (ADR) represents

A ____ is an agreement to between two firms where one firm agrees to sell some of its financial assets to another and then buy the financial assets back from that firm at a later time

Corporations issue and purchase a variety of financial securities for all of the following reasons EXCEPT

All of the following may serve to reduce the coupon rate that would otherwise be required on a bond issued at par, except a

Which of the following factors does not influence a firm's long-term financing decisions?

The Eurodollar market is essentially a long-term market; most loans and deposits have maturities of longer than one year.

LIBOR is an acronym for London Interbank Offer Rate, which is an average of interest rates offered by London banks to U.S.corporations.

A proxy fight involves a battle by a shareholder or group of shareholders who seek to change the investment policy of the firm.If the proxy group is successful, current management retains control of the firm but the proxy group dictates what investments the firm makes.

Firms generally do not call their convertibles unless their conversion value is greater than their call price.

Because junk bonds are such high-risk instruments, the returns on such bonds aren't very high and the existence of this market detracts from social welfare.

The preemptive right is important to shareholders because it

Founders' shares is a type of classified stock where the shares are owned by the firm's founders and they retain the sole voting rights to those shares but have restricted dividends for a specified time period.

Which of the following statements is correct?

The "preferred" feature of preferred stock means that it normally will generate a higher total return for the stockholder than common stock.

When a corporation's shares are owned by a few individuals who are associated with the firm's management, we say that the firm is "closely held."

Which of the following statements concerning common stock and the investment banking process is false?

Which of the following statements is correct?

Sharon has a convertible bond with a face value of $1,000 that can be converted into 40 shares of common stock of Mountain Ice Corporation.If the current price of the stock is $20, what is the conversion price of the bond?

An Overview of Finance

Financial Markets and the Investment Banking Process

Financial Intermediaries and the Banking System

The Cost of Money Interest Rates

Business Organizations and the Tax Environment

Analysis of Financial Statements

Financial Planning and Control

Time Value of Money

Valuation Concepts

Risk and Rates of Return

The Cost of Capital

Capital Budgeting

Capital Structure and Dividend Policy Decisions

Working Capital Management

Investment Concepts

Security Valuation and Selection

Filters