Question 1

Corporate governance refers to the rules, policies, and procedures that are used to direct and control a company.

Accepted Answer

A) True 
 B)False

Question 2

According to a study (Callahan and Mauboussin), when does compensation conflict tend to occur?

Accepted Answer

A)  When it provides strong incentives to create shareholder value 
B)  When it helps retain key talent 
C)  When it limits compensation cost to levels that maximize the wealth of shareholders 
D)  When management has most of their wealth in this one company, so they may take too little risk 
E)  When it makes management focus on long-term value maximization rather than earnings per share 
A)  When it provides strong incentives to create shareholder value 
B)  When it helps retain key talent 
C)  When it limits compensation cost to levels that maximize the wealth of shareholders 
D)  When management has most of their wealth in this one company, so they may take too little risk 
E)  When it makes management focus on long-term value maximization rather than earnings per share

Question 3

Sell-side analysts provide information and recommendations to their firm's portfolio manager(s).

Accepted Answer

A) True 
 B)False

Question 4

_____ refers to the rules, policies, and procedures that are used to direct and control a company.

Accepted Answer

A)  Corporate governance 
B)  Capital allocation 
C)  Executive compensation 
D)  Going public 
E)  A stock pitch 
A)  Corporate governance 
B)  Capital allocation 
C)  Executive compensation 
D)  Going public 
E)  A stock pitch

Question 5

The _____ gives the investment bank the right to buy 15 percent more shares within the next 30 days.

Accepted Answer

A)  underwriters fee 
B)  red herring 
C)  overallotment option 
D)  winner's curse 
E)  red shoe option 
A)  underwriters fee 
B)  red herring 
C)  overallotment option 
D)  winner's curse 
E)  red shoe option

Question 6

Share repurchases do not always create value.

Accepted Answer

A) True 
 B)False

Question 7

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

Accepted Answer

A)  corporate governance 
B)  capital allocation 
C)  executive compensation 
D)  going public 
E)  the stock pitch 
A)  corporate governance 
B)  capital allocation 
C)  executive compensation 
D)  going public 
E)  the stock pitch

Question 8

If there is a demand for more shares than are available at the offering price, the offering is said to be _____.

Accepted Answer

A)  undersubscribed 
B)  oversubscribed 
C)  overpriced 
D)  underpriced 
E)  popular 
A)  undersubscribed 
B)  oversubscribed 
C)  overpriced 
D)  underpriced 
E)  popular

Question 9

The three goals of executive compensation are to align management's interest with the shareholders, to keep management from leaving in bad times, and to refrain from giving too much of shareholder profits to management.

Accepted Answer

A) True 
 B)False

Question 10

A company is going public with an offering price of $10 per share. The gross spread is 7 percent. How much will the bank receive? How much will the issuing firm receive?

Accepted Answer

A)  $1.07; $17.00 
B)  $1.70; $7.00 
C)  $0.70; $9.30 
D)  $7.00; $10.00 
E)  $7.00; $3.00 
A)  $1.07; $17.00 
B)  $1.70; $7.00 
C)  $0.70; $9.30 
D)  $7.00; $10.00 
E)  $7.00; $3.00

Question 11

The least significant part of the registration statement is known as the prospectus.

Accepted Answer

A) True 
 B)False

Question 12

When a firm decides to go public, it hires an investment bank to lead the company through the process.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following facts about executive compensation is TRUE?

Accepted Answer

A)  The level of compensation of the top five earners within each public company is not disclosed. 
B)  Officers are permitted to hedge their stock and option awards. 
C)  CEO compensation has increased much faster than the wages of the other corporate employees. 
D)  Aligning compensation to share price will align management to shareholders. 
E)  The majority of the compensation committee must be dependent directors. 
A)  The level of compensation of the top five earners within each public company is not disclosed. 
B)  Officers are permitted to hedge their stock and option awards. 
C)  CEO compensation has increased much faster than the wages of the other corporate employees. 
D)  Aligning compensation to share price will align management to shareholders. 
E)  The majority of the compensation committee must be dependent directors.

Question 14

A company is going public with an offering price of $27 per share. The gross spread is 7 percent. How much will the bank receive? How much will the issuing firm receive?

Accepted Answer

A)  $2.70; $24.30 
B)  $1.89; $25.11 
C)  $0.70; $27.00 
D)  $7.00; $20.00 
E)  $7.00; $27.00 
A)  $2.70; $24.30 
B)  $1.89; $25.11 
C)  $0.70; $27.00 
D)  $7.00; $20.00 
E)  $7.00; $27.00

Question 15

A company is going public with an offering price of $15 per share. The gross spread is 7 percent. How much will the bank receive? How much will the issuing firm receive?

Accepted Answer

A)  $1.05; $13.95 
B)  $1.50; $15.00 
C)  $1.50; $13.50 
D)  $1.05; $15.00 
E)  $7.00; $15.00 
A)  $1.05; $13.95 
B)  $1.50; $15.00 
C)  $1.50; $13.50 
D)  $1.05; $15.00 
E)  $7.00; $15.00

Question 16

The ex-dividend date is the date on which the transfer agent "closes the book" and looks at who is the shareholder.

Accepted Answer

A) True 
 B)False

Question 17

A company is going public by selling 75 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

Question 18

The fee paid to the underwriter is called the

Accepted Answer

A)  tactical spread. 
B)  net spread. 
C)  gross spread. 
D)  listing fee. 
E)  banking fee. 
A)  tactical spread. 
B)  net spread. 
C)  gross spread. 
D)  listing fee. 
E)  banking fee.

Question 19

An investment bank can do an IPO offering as a

Accepted Answer

A)  discounted commitment. 
B)  best efforts commitment. 
C)  premium commitment. 
D)  best efforts offering. 
E)  red herring. 
A)  discounted commitment. 
B)  best efforts commitment. 
C)  premium commitment. 
D)  best efforts offering. 
E)  red herring.

Question 20

The declaration date is the date that a dividend is announced by the board of directors.

Accepted Answer

A) True 
 B)False

Exam 10: The Practice of Fundamental Investing

Corporate governance refers to the rules, policies, and procedures that are used to direct and control a company.

According to a study (Callahan and Mauboussin), when does compensation conflict tend to occur?

Sell-side analysts provide information and recommendations to their firm's portfolio manager(s).

_____ refers to the rules, policies, and procedures that are used to direct and control a company.

The _____ gives the investment bank the right to buy 15 percent more shares within the next 30 days.

Share repurchases do not always create value.

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

If there is a demand for more shares than are available at the offering price, the offering is said to be _____.

The three goals of executive compensation are to align management's interest with the shareholders, to keep management from leaving in bad times, and to refrain from giving too much of shareholder profits to management.

A company is going public with an offering price of $10 per share. The gross spread is 7 percent. How much will the bank receive? How much will the issuing firm receive?

The least significant part of the registration statement is known as the prospectus.

When a firm decides to go public, it hires an investment bank to lead the company through the process.

Which of the following facts about executive compensation is TRUE?

A company is going public with an offering price of $27 per share. The gross spread is 7 percent. How much will the bank receive? How much will the issuing firm receive?

A company is going public with an offering price of $15 per share. The gross spread is 7 percent. How much will the bank receive? How much will the issuing firm receive?

The ex-dividend date is the date on which the transfer agent "closes the book" and looks at who is the shareholder.

A company is going public by selling 75 million shares. As a result of the overallotment option, the investment bank has the right to buy an additional _____ shares.

The fee paid to the underwriter is called the

An investment bank can do an IPO offering as a

The declaration date is the date that a dividend is announced by the board of directors.

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

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