Question 1

The high start-up costs of online businesses cause online brokers to charge higher commissions than traditional brokerage firms.

Accepted Answer

A) True 
 B)False

Question 2

Which of the following offers low risk, guaranteed income, backed by the full faith and credit of the federal government?

Accepted Answer

A)  municipal bonds 
B)  U.S. government preferred stocks 
C)  common stock in the U.S. postal service 
D)  U.S. government bonds

Question 3

Investors buying bonds and corporations issuing bonds (both) accept investment risk. Which of the following statements is most correct when it comes to the investment risks that one or the other party accepts?

Accepted Answer

A)  If investor Joe is holding a bond that pays 5% and market interest rates on similar bonds go down, Joe must hold the bond until maturity because if he were to sell it today, he would have to sell it at a discount. 
B)  If investor Joe is holding a bond that pays 5% and market interest rates on similar bonds go down, Joe's bond is now worth more than its face value, and if he needed to sell it on the secondary market, he could probably sell it at a premium. 
C)  If investor Joe is holding a bond that pays 5% and interest rates on similar bonds go up, Joe stands to gain more than the face value of the bond if he were to sell it on the secondary market today. 
D)  If XYZ Corporation wants to issue bonds to pay for an expansion project, and analysts predict that interest rates are projected to climb over the next few years, it is to the corporation's advantage to wait until next year to issue the bonds.

Question 4

The risk/return trade-off investors assume means

Accepted Answer

A)  the less you risk, the more you stand to gain. 
B)  the same as diversification of your portfolio. 
C)  you will assume added risk, if you believe you can get a greater return. 
D)  the goal is to never risk liquidity; your investments should always be liquid and of short duration.

Question 5

The NASDAQ is a floor-based exchange.

Accepted Answer

A) True 
 B)False

Question 6

Game Guys, Inc. needs several million dollars in order to expand and become the international company that it says it wants to be in its strategic plan. After consulting with an investment banker who is willing to underwrite the issue, it learned that investors will purchase the stock for $32/share. Game Guys will receive a smaller amount for each share that is sold.

Accepted Answer

A) True 
 B)False

Question 7

A callable bond allows a bondholder to exchange his/her bond for shares of common stock in the same corporation.

Accepted Answer

A) True 
 B)False

Question 8

The interest rate paid to bondholders is sometimes called the coupon rate.

Accepted Answer

A) True 
 B)False

Question 9

Game Guys, Inc., needs several million dollars to expand and follow its strategic plan. In negotiations with the investment banker, they agree to issue 50 million shares of common stock, at $25/share. If the investment banker's fee for underwriting the total sale is 5.82%, what is the discounted price that the investment bank is willing to pay Game Guys for the shares?

Accepted Answer

A)  around $120,000,000 
B)  around $1,200,000,000 
C)  around $140,000,000 
D)  around $14,000

Question 10

Buying on margin is a relatively risk-free way of investing in the stock market.

Accepted Answer

A) True 
 B)False

Question 11

When you place a limit order, it means you are willing to buy or sell the stock at the best price available.

Accepted Answer

A) True 
 B)False

Question 12

Most mutual funds provide investors an opportunity to buy shares directly without using a stockbroker.

Accepted Answer

A) True 
 B)False

Question 13

Amy plans to buy 100 shares of common stock in Marshall Manufacturing. She willingly accepts the risk of this investment because she

Accepted Answer

A)  understands that creditors are protected from risk. 
B)  desires an opportunity to share in the success of this company. 
C)  knows that every gambler wins occasionally. 
D)  believes that a bear market is on the way.

Question 14

An initial public offering (IPO) represents the first time a corporation's stock is offered and sold to persons outside of the company.

Accepted Answer

A) True 
 B)False

Question 15

Ernesto told his broker to buy 75 shares of PharmaONE at the best possible price available that day. These directions indicate that Ernesto placed a ________ order with his broker.

Accepted Answer

A)  market 
B)  limit 
C)  margin 
D)  split

Question 16

According to the Securities Act of 1933 it is against the law for a firm that is publicly trading securities to deny an investor from knowing how the firm is doing financially.

Accepted Answer

A) True 
 B)False

Question 17

Hallie owns 20% of the common stock of the Bean Brothers Coffee Company. The company announced plans to offer an additional 10,000 shares of common stock for sale. If Hallie exercises her preemptive rights, Bean Brothers must offer her the opportunity to purchase

Accepted Answer

A)  8,000 shares. 
B)  2,000 shares. 
C)  as many of the new shares as the investor is willing and able to buy. 
D)  20% of the outstanding preferred stock.

Question 18

Before a corporation's stock can be sold on a major stock exchange, the firm must provide detailed financial information to the Securities and Exchange Commission (SEC).

Accepted Answer

A) True 
 B)False

Question 19

Issuing bonds is considered debt financing.

Accepted Answer

A) True 
 B)False

Question 20

Penny is concerned about the interest rate risk if the company decides to issue bonds. Penny would like protection from interest rate fluctuation. Therefore, the bond issue's features should include a(n)

Accepted Answer

A)  equity proposition. 
B)  call provision. 
C)  convertibility clause. 
D)  collateral agreement.

Exam 19: Using Securities Markets for Financing and Investing Opportunities

The high start-up costs of online businesses cause online brokers to charge higher commissions than traditional brokerage firms.

Which of the following offers low risk, guaranteed income, backed by the full faith and credit of the federal government?

Investors buying bonds and corporations issuing bonds (both) accept investment risk. Which of the following statements is most correct when it comes to the investment risks that one or the other party accepts?

The risk/return trade-off investors assume means

The NASDAQ is a floor-based exchange.

A callable bond allows a bondholder to exchange his/her bond for shares of common stock in the same corporation.

The interest rate paid to bondholders is sometimes called the coupon rate.

Buying on margin is a relatively risk-free way of investing in the stock market.

When you place a limit order, it means you are willing to buy or sell the stock at the best price available.

Most mutual funds provide investors an opportunity to buy shares directly without using a stockbroker.

Amy plans to buy 100 shares of common stock in Marshall Manufacturing. She willingly accepts the risk of this investment because she

An initial public offering (IPO) represents the first time a corporation's stock is offered and sold to persons outside of the company.

Ernesto told his broker to buy 75 shares of PharmaONE at the best possible price available that day. These directions indicate that Ernesto placed a ________ order with his broker.

According to the Securities Act of 1933 it is against the law for a firm that is publicly trading securities to deny an investor from knowing how the firm is doing financially.

Hallie owns 20% of the common stock of the Bean Brothers Coffee Company. The company announced plans to offer an additional 10,000 shares of common stock for sale. If Hallie exercises her preemptive rights, Bean Brothers must offer her the opportunity to purchase

Before a corporation's stock can be sold on a major stock exchange, the firm must provide detailed financial information to the Securities and Exchange Commission (SEC).

Issuing bonds is considered debt financing.

Penny is concerned about the interest rate risk if the company decides to issue bonds. Penny would like protection from interest rate fluctuation. Therefore, the bond issue's features should include a(n)