Question 1

A general cash offer involves the following processes:
I.register the issue with the SEC;
II.sell the securities through an underwriter or a syndicate of underwriters;
III.have underwriter build up a book of likely demand for the securities
IV.price of the issue is fixed;
V.sell the securities to the public

Accepted Answer

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

Question 2

The underwriting spread for debt is generally less than that for equity.

Accepted Answer

A) True 
 B)False  True

Question 3

Generally, initial public offerings (IPOs)are

Accepted Answer

A)  overpriced.
B)  correctly priced.
C)  underpriced.
D)  There is no general trend. C

Question 4

Underpricing is a technique used by underwriters to enhance the success of an issue.

Accepted Answer

A) True 
 B)False

Question 5

Suppose a government wishes to auction 5 million bonds (quantity), and three would-be buyers submit the following bids:

In a uniform-price auction,

Accepted Answer

A)  Buyer A pays $1,015 and Buyer B pays $1,000.
B)  Buyer A pays $1,000 and Buyer B pays $1,000.
C)  Buyer A pays $990 and Buyer B pays $990.
D)  Buyer A pays $1,000 and Buyer C Pays $990.

Question 6

Underwriters are typically compensated for their services in helping a firm issue new securities in the form of a

Accepted Answer

A)  commission.
B)  set fee.
C)  spread.
D)  finder's fee.

Question 7

Spinning refers to the practice whereby an underwriter sells shares in a hot new issue to a CEO, for instance,-for the CEO's personal benefit-for the purpose of the underwriter gaining future business from the CEO's firm.

Accepted Answer

A) True 
 B)False

Question 8

In a uniform-price auction,

Accepted Answer

A)  all winning bidders pay the price that they bid.
B)  all winning bidders pay a price that is the highest bid.
C)  all winning bidders pay a price that is the lowest winning bid.
D)  all winning bidders receive their full allocation.

Question 9

The first public issue by a firm is known as a seasoned equity offering.

Accepted Answer

A) True 
 B)False

Question 10

New Image Corporation has 1,000,000 shares outstanding. It wishes to issue 500,000 new shares using rights issue. How many (North American)rights are needed to buy one new share?

Accepted Answer

A)  One right/share
B)  Two rights/share
C)  Three rights/share
D)  Four rights/share

Question 11

Generally, underwriters provide the following services to the issuing firm:
I.provide advice;
II.buy some or all of the new issue;
III.resell the issue to the public

Accepted Answer

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

Question 12

When a company sells an entire issue of securities to a small group of institutional investors like life insurance companies, pension funds, and so forth, it is called a(n)

Accepted Answer

A)  rights offering.
B)  general art offering.
C)  private placement.
D)  unseasoned issue.

Question 13

The New Word Corporation has 1,000,000 shares outstanding at $30/share. If the firm wishes to raise $13.5 million at a subscription price (North American rights offering)of $27/share, calculate the value of a right.

Accepted Answer

A)  $1/right
B)  $2/right
C)  $3/right
D)  $4/right

Question 14

Underwriters will handle an issue of new securities on a(n)
I.best efforts basis;
II.firm commitment basis;
III.all or none basis

Accepted Answer

A)  I only
B)  II only
C)  III only
D)  I or II or III

Question 15

The possibility that the winner (highest bidder)in an auction process may have bid a price that is very high (far above the value)is called

Accepted Answer

A)  winner's curse.
B)  seniority.
C)  English auction.
D)  uniform-price auction.

Question 16

Discuss the advantages of shelf registration.

Accepted Answer

The answer of Discuss the advantages of shelf registration....

Question 17

Underpricing is not a serious problem for most initial public offerings (IPOs).

Accepted Answer

A) True 
 B)False

Question 18

What costs in an IPO generally exceed all other costs?

Accepted Answer

A)  Commissions
B)  Issues fees
C)  Spreads
D)  Underpricing

Question 19

Equity investment in start-up private companies is called

Accepted Answer

A)  venture capital.
B)  mezzanine financing.
C)  initial public offering (IPO) .
D)  seasoned equity offering (SEO) .

Question 20

The most prevalent motive for firms to undertake an IPO is to create public shares for use in future acquisitions.

Accepted Answer

A) True 
 B)False

Exam 15: How Corporations Issue Securities

The underwriting spread for debt is generally less than that for equity.

Generally, initial public offerings (IPOs) are

Underpricing is a technique used by underwriters to enhance the success of an issue.

Suppose a government wishes to auction 5 million bonds (quantity) , and three would-be buyers submit the following bids: In a uniform-price auction,

Underwriters are typically compensated for their services in helping a firm issue new securities in the form of a

Spinning refers to the practice whereby an underwriter sells shares in a hot new issue to a CEO, for instance,-for the CEO's personal benefit-for the purpose of the underwriter gaining future business from the CEO's firm.

In a uniform-price auction,

The first public issue by a firm is known as a seasoned equity offering.

New Image Corporation has 1,000,000 shares outstanding. It wishes to issue 500,000 new shares using rights issue. How many (North American) rights are needed to buy one new share?

Generally, underwriters provide the following services to the issuing firm: I.provide advice; II.buy some or all of the new issue; III.resell the issue to the public

When a company sells an entire issue of securities to a small group of institutional investors like life insurance companies, pension funds, and so forth, it is called a(n)

The New Word Corporation has 1,000,000 shares outstanding at $30/share. If the firm wishes to raise $13.5 million at a subscription price (North American rights offering) of $27/share, calculate the value of a right.

Underwriters will handle an issue of new securities on a(n) I.best efforts basis; II.firm commitment basis; III.all or none basis

The possibility that the winner (highest bidder) in an auction process may have bid a price that is very high (far above the value) is called

Discuss the advantages of shelf registration.

Underpricing is not a serious problem for most initial public offerings (IPOs).

What costs in an IPO generally exceed all other costs?

Equity investment in start-up private companies is called

The most prevalent motive for firms to undertake an IPO is to create public shares for use in future acquisitions.