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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 61

True/False

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

A) True
B) False

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Question 62

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

A) True
B) False

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Question 63

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The NASDAQ is a floor-based exchange.

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

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.

The risk/return trade-off investors assume means

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

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

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

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.

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?

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.

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)

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

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

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 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?

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.