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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 211

Multiple Choice

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Ina Vestor has a brokerage account with one of the remaining large investment firms. This morning her broker called asking if she is interested in participating in an IPO. He went on to say that he could get her 200 shares for $23/share. If Ina agrees to buy the IPO, the trade will take place in the .

A) fair trade market
B) Boston market
C) primary market
D) secondary market

E) A) and B)
F) None of the above

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Question 212

True/False

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A U.S. government bond paying 3.25% interest annually is a lower risk than a Bellandro Bay Brewery bond paying 6%.

A) True
B) False

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Question 213

Multiple Choice

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Idle Time Gaming, Inc has reached a point in its life where it needs several million dollars in order to expand and follow its strategic plan. In negotiations with the investment banker, they agree to issue 40 million shares of common stock, at $22/share. If the Investment Banker's fee for underwriting the total sale is 6.82%, what is the discounted price that the investment bank is willing to pay Idle Time for the shares?

A mutual fund's purpose is rapid investment growth not to provide diversification for investors.

The degree of risk in mutual fund investments remains nearly the same from one fund to the next.

In a secondary market sale of stock, the proceeds go to the investor selling the stock, not to the corporation.

Sam Schiester, a stockbroker at Schemes Financial Services Company called you the other day asking if you would like to purchase an IPO. "The hot new company, Hottie Potatee is going public, and I thought you might want to get in on it," he exclaimed. If you agree to buy shares of this company, this trade will occur on the secondary market.

Reviewing the stock market performance between 2000 and 2002 reveals a:

An investment banking firm assists corporations in selling the new security issue.

Juan recently invested in 15-year Bellandro Bay Brewery bonds paying 6% interest annually, with a maturity date of 2020. The bonds are callable in 2015. If interest rates go down to 4.5% in the year 2015, the brewery is likely to:

Investment bankers new issues of bonds or stocks by purchasing, at a discount, the entire stock or bond issue of a firm and selling the issue to interested investors at a higher price.

Ellie owns stock in Rotary Technologies. Her stock provides a priority claim on dividend payments and on the firm's assets in the event of liquidation. However, her stock ownership does not offer her voting rights.

When an investor purchases a security, the investor does so with the expectation of:

One funding source under consideration is the issuance of $150 million worth of corporate bonds. A financial advisor predicted that in order for the fast growing company to attract investors, it would have to put up collateral to back-up the bond issue. The type of bond the financial advisor suggests is:

The Dow Jones Industrial Average utilizes the prices of the same 30 companies' stocks each year to ensure consistency.

With everything else held constant, secured bonds likely pay investors a interest rate than debenture bonds.

We calculate the mutual fund's NAV (Net Asset Value) by dividing the total market value of the fund, by the number of shared outstanding.

Long-term funds acquired through the sale of stock are not required to be repaid to the investor.

Only those individuals and/or companies with a membership on a stock exchange can buy and sell securities on that stock exchange.

stocks represent investments in emerging fields that have the potential to realize better than average increases in the stock's prices.