Question 1

Kaplan (2013) argues that the market for top executives is competitive, and compensation of other professionals is growing even faster.

Accepted Answer

A) True 
 B)False  True

Question 2

A company is going public by selling 50 million shares. As a result of the overallotment option, the investment bank has the right to buy an additional _____ shares.

Accepted Answer

A)  2.5 million 
B)  5.25 million 
C)  7.5 million 
D)  9.5 million 
E)  11.25 million 
A)  2.5 million 
B)  5.25 million 
C)  7.5 million 
D)  9.5 million 
E)  11.25 million C

Question 3

A company goes public for many reasons, including that the original investors and the management team would like liquidity.

Accepted Answer

A) True 
 B)False  True

Question 4

The _____ is the idea that anyone who wins an auction must have bid too much.

Accepted Answer

A)  blue herring 
B)  red herring 
C)  loser's curse 
D)  winner's curse 
E)  red shoe 
A)  blue herring 
B)  red herring 
C)  loser's curse 
D)  winner's curse 
E)  red shoe

Question 5

Which of the following is a document that helps potential investors understand the company?

Accepted Answer

A)  Indications of interest 
B)  The pricing meeting 
C)  The registration statement 
D)  The road show 
E)  The prospectus 
A)  Indications of interest 
B)  The pricing meeting 
C)  The registration statement 
D)  The road show 
E)  The prospectus

Question 6

The _____ refers to firms that facilitate securities transactions.

Accepted Answer

A)  buy-side 
B)  sell-side 
C)  SEC 
D)  issuing firm 
E)  pension fund 
A)  buy-side 
B)  sell-side 
C)  SEC 
D)  issuing firm 
E)  pension fund

Question 7

A stock went public at $27 and closed at $45. What was the underpricing percentage?

Accepted Answer

A)  18 percent 
B)  40 percent 
C)  27 percent 
D)  66.67 percent 
E)  45 percent 
A)  18 percent 
B)  40 percent 
C)  27 percent 
D)  66.67 percent 
E)  45 percent

Question 8

Which of the following describes the process of when the underwriter takes the issuing company's management to meet with potential investors?

Accepted Answer

A)  Indications of interest 
B)  The pricing meeting 
C)  The registration statement 
D)  The road show 
E)  The prospectus 
A)  Indications of interest 
B)  The pricing meeting 
C)  The registration statement 
D)  The road show 
E)  The prospectus

Question 9

A successful offering is undersubscribed.

Accepted Answer

A) True 
 B)False

Question 10

A stock went public at $15 and closed at $17.70. What was the underpricing percentage?

Accepted Answer

A)  15 percent 
B)  17 percent 
C)  18 percent 
D)  17.70 percent 
E)  15.25 percent 
A)  15 percent 
B)  17 percent 
C)  18 percent 
D)  17.70 percent 
E)  15.25 percent

Question 11

The underpricing during the 1999-2000 technology bubble was above _____.

Accepted Answer

A)  18 percent 
B)  30 percent 
C)  25 percent 
D)  66 percent 
E)  55 percent 
A)  18 percent 
B)  30 percent 
C)  25 percent 
D)  66 percent 
E)  55 percent

Question 12

The key issues that investors seem to care about with respect to a board include all of the following, EXCEPT

Accepted Answer

A)  the size of the board. 
B)  stratthe independence of the board. 
C)  how the board responds to shareholder proposals. 
D)  separation of the CEO and board chair positions. 
E)  how management is compensated. 
A)  the size of the board. 
B)  stratthe independence of the board. 
C)  how the board responds to shareholder proposals. 
D)  separation of the CEO and board chair positions. 
E)  how management is compensated.

Question 13

A stock pitch is like a book report or a news report.

Accepted Answer

A) True 
 B)False

Question 14

Investors want directors who will voice their opinion, who are not beholden to the CEO or board chair, and who have enough experience that their opinion carries weight on the board.

Accepted Answer

A) True 
 B)False

Question 15

An investment bank can do an IPO offering as a

Accepted Answer

A)  firm commitment. 
B)  best efforts commitment. 
C)  firm offering. 
D)  bought offering. 
E)  red herring. 
A)  firm commitment. 
B)  best efforts commitment. 
C)  firm offering. 
D)  bought offering. 
E)  red herring.

Question 16

Once the offering has been deemed effective, the investment bank and the issuing firm have a/an _____.

Accepted Answer

A)  indication of interest 
B)  pricing meeting 
C)  registration statement 
D)  road show 
E)  prospectus 
A)  indication of interest 
B)  pricing meeting 
C)  registration statement 
D)  road show 
E)  prospectus

Question 17

The sell-side refers to firms that facilitate securities transactions.

Accepted Answer

A) True 
 B)False

Question 18

The goal of the stock pitch is to convince an investor to buy a stock or to sell a stock short.

Accepted Answer

A) True 
 B)False

Question 19

The _____ refers to firms that actually invest in securities.

Accepted Answer

A)  buy-side 
B)  sell-side 
C)  SEC 
D)  issuing firm 
E)  investment bank 
A)  buy-side 
B)  sell-side 
C)  SEC 
D)  issuing firm 
E)  investment bank

Question 20

Buy-side analysts typically cover the stocks within a particular industry and produce reports that are intended to help the sell-side reach investment decisions.

Accepted Answer

A) True 
 B)False

Exam 10: The Practice of Fundamental Investing

Kaplan (2013) argues that the market for top executives is competitive, and compensation of other professionals is growing even faster.

A company is going public by selling 50 million shares. As a result of the overallotment option, the investment bank has the right to buy an additional _____ shares.

A company goes public for many reasons, including that the original investors and the management team would like liquidity.

The _____ is the idea that anyone who wins an auction must have bid too much.

Which of the following is a document that helps potential investors understand the company?

The _____ refers to firms that facilitate securities transactions.

A stock went public at $27 and closed at $45. What was the underpricing percentage?

Which of the following describes the process of when the underwriter takes the issuing company's management to meet with potential investors?

A successful offering is undersubscribed.

A stock went public at $15 and closed at $17.70. What was the underpricing percentage?

The underpricing during the 1999-2000 technology bubble was above _____.

The key issues that investors seem to care about with respect to a board include all of the following, EXCEPT

A stock pitch is like a book report or a news report.

Investors want directors who will voice their opinion, who are not beholden to the CEO or board chair, and who have enough experience that their opinion carries weight on the board.

An investment bank can do an IPO offering as a

Once the offering has been deemed effective, the investment bank and the issuing firm have a/an _____.

The sell-side refers to firms that facilitate securities transactions.

The goal of the stock pitch is to convince an investor to buy a stock or to sell a stock short.

The _____ refers to firms that actually invest in securities.

Buy-side analysts typically cover the stocks within a particular industry and produce reports that are intended to help the sell-side reach investment decisions.

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters