Question 1

Capital market transactions include which of the following?

Accepted Answer

A)  any security that is purchased from a brokerage firm that is well capitalized
B)  common stock of a public corporation
C)  all securities that are purchased in the open market
D)  U.S.Treasury bills B

Question 2

A seasoned equity offering is the sale of additional shares by a company whose shares are already publicly traded.

Accepted Answer

A) True 
 B)False  True

Question 3

The investment banking business is dominated by a few very large,stand-alone investment banking firms.

Accepted Answer

A) True 
 B)False  False

Question 4

Which of the following is NOT a benefit provided by the existence of organized security exchanges?

Accepted Answer

A)  providing a continuous market
B)  establishing and publicizing fair security prices
C)  helping businesses raise new capital
D)  standardization of all debt agreements

Question 5

The bid price is the price that a dealer will pay for a security; the asked price is the price at which she will sell a security.

Accepted Answer

A) True 
 B)False

Question 6

Which of the following is an advantage of organized stock exchanges?

Accepted Answer

A)  increased stock price volatility
B)  screening companies to ensure only low risk stocks are sold
C)  providing a continuous market
D)  only profitable companies may issue new securities on an organized exchange

Question 7

Advantages of private placements do NOT include which of the following?

Accepted Answer

A)  more financing flexibility
B)  lower flotation costs
C)  investor protection through extensive regulation
D)  funds which are available more quickly than through a public offering

Question 8

The Sarbanes-Oxley Act,or SOX

Accepted Answer

A)  holds corporate advisors strictly accountable in a legal sense for any instances of misconduct.
B)  pretexts the interests of shareholders by providing greater protection against accounting fraud and financial misconduct.
C)  reduces the cost of financial reporting by standardizing reporting requirements.
D)  accomplishes both A and B.

Question 9

Which of the following is an advantage of using private placements for debt?

Accepted Answer

A)  reduced costs from the elimination of the registration statement for the SEC,investment-banking underwriting fees and distribution costs
B)  lower interest costs
C)  fewer and less burdensome restrictive covenants
D)  the possibility of future SEC registration

Question 10

The competitive bid purchase is largely confined to railroad,public utility,and municipal bond issues.

Accepted Answer

A) True 
 B)False

Question 11

The nominal interest rate is 7% and the expected inflation rate is 2%.Based on the Fisher effect,the real rate of interest is

Accepted Answer

A)  5.0%.
B)  6.86%.
C)  5.1%.
D)  4.9%.

Question 12

A group of investment bankers organized to distribute large securities issues is known as a syndicate.

Accepted Answer

A) True 
 B)False

Question 13

Primary market transactions cannot be undertaken in over the counter markets.

Accepted Answer

A) True 
 B)False

Question 14

The costs associated with issuing securities to the public can be high.Some types of securities have greater expenses associated with them than others.Which of the following is the most costly security to issue?

Accepted Answer

A)  common stock
B)  corporate bonds
C)  preferred stock
D)  all of the above

Question 15

In response to the banking crisis and economic collapse of 2007 and 2008,the U.S.government moved to increase interest rates in order to attract foreign capital seeking high returns in U.S.banks.

Accepted Answer

A) True 
 B)False

Question 16

Money market transactions include which of the following?

Accepted Answer

A)  any security that is paid for with cash
B)  30-year U.S.Treasury bonds
C)  all securities paid for with the proceeds of a money market account
D)  securities that have a maturity of less than one year

Question 17

The investment banker performs three basic functions: (1)underwriting,(2)distributing,and (3)advising.

Accepted Answer

A) True 
 B)False

Question 18

Over time,there has been a high correlation between actual rates of return on securities and the securities' standard deviations of returns.

Accepted Answer

A) True 
 B)False

Question 19

Flotation costs are typically greater in the secondary market than in the primary market.

Accepted Answer

A) True 
 B)False

Question 20

The negotiated purchase is the most prevalent method of securities distribution in the private sector.

Accepted Answer

A) True 
 B)False

Exam 2: The Financial Markets and Interest Rates

Capital market transactions include which of the following?

A seasoned equity offering is the sale of additional shares by a company whose shares are already publicly traded.

The investment banking business is dominated by a few very large,stand-alone investment banking firms.

Which of the following is NOT a benefit provided by the existence of organized security exchanges?

The bid price is the price that a dealer will pay for a security; the asked price is the price at which she will sell a security.

Which of the following is an advantage of organized stock exchanges?

Advantages of private placements do NOT include which of the following?

The Sarbanes-Oxley Act,or SOX

Which of the following is an advantage of using private placements for debt?

The competitive bid purchase is largely confined to railroad,public utility,and municipal bond issues.

The nominal interest rate is 7% and the expected inflation rate is 2%.Based on the Fisher effect,the real rate of interest is

A group of investment bankers organized to distribute large securities issues is known as a syndicate.

Primary market transactions cannot be undertaken in over the counter markets.

The costs associated with issuing securities to the public can be high.Some types of securities have greater expenses associated with them than others.Which of the following is the most costly security to issue?

In response to the banking crisis and economic collapse of 2007 and 2008,the U.S.government moved to increase interest rates in order to attract foreign capital seeking high returns in U.S.banks.

Money market transactions include which of the following?

The investment banker performs three basic functions: (1)underwriting,(2)distributing,and (3)advising.

Over time,there has been a high correlation between actual rates of return on securities and the securities' standard deviations of returns.

Flotation costs are typically greater in the secondary market than in the primary market.

The negotiated purchase is the most prevalent method of securities distribution in the private sector.