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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 91

Multiple Choice

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Which of the following trades corporate stocks not listed on the national securities exchanges?

A) Federal Investment Assurance Agency
B) American Stock Exchange
C) over-the-counter market
D) Chicago Board of Trade

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

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Question 92

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Bonds represent a major source of long-term financing. What is a bond? Explain the major elements that must be in a bond issue.

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A bond is a corporate certificate indica...

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Question 93

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A bear is an investor that expects stock prices to rise.

If Pirate Recording elects to offer an Initial Public Offering (IPO) , it will involve preparing full financial disclosure with the ________. The firm is advised to solicit the services of an investment banker/underwriter, who will analyze the market and determine the best price for the new issue of Pirate Recording stock. The offering will then be sold on the ________.

Well-known foreign exchanges that also exchange the securities of U.S. firms include the Sydney Exchange and the Tokyo Exchange.

Orlando, a recent graduate of a community college, is about to make his first investment in the stock market. Which of the following would be a cautious way for Orlando to start investing?

Another term for portfolio strategy is

As a legal contract, bonds issued by different companies carry the same level of risk.

Government bonds can vary in denomination, but most corporate bonds are issued in

Diversification means

Bonds sold at a ________ sell for less than face value.

A U.S. government bond paying 3.25% interest annually is a lower risk than a Bathtub Brewing Company bond paying 6%.

Which of the following statements best describes the current legal interpretation of insider trading?

________ represents the most basic form of company ownership and includes voting rights and dividends, if and when the firm elects to pay dividends.

Michael is looking for an investment that will pay a little better than what he can get from a government bond. You suggest that he consider a new issue of debenture bonds by Leafy Greens that pay 7.5% annually. You explain that Leafy Greens has been in business a long time, and the debenture feature makes these bonds more secure than others.

For the firm, the cost of paying dividends to common stockholders is higher than the cost of the same amount of interest paid to bondholders.

For starters, investors should consider the return on investment, the liquidity, and riskiness of an investment.

Investors and corporations are on the opposite sides of the interest rate risk scenario. If interest rates go up to 7%, the bondholder holding a bond with a 6% interest rate knows that he could do better. If he is forced to sell his bond on the secondary market before it matures, he will receive less than the face value.

How do investment bankers generate revenues for their firms?

Stocks that are not listed as trading on one of the national or international stock exchanges can be traded on the OTC, over-the-counter exchange.