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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 161

True/False

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The advantage of using an online broker is that these services usually provide you with a wealth of information and help you allocate your assets.Sometimes they even help you create an investment plan for life!

A) True
B) False

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Question 162

True/False

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Bond interest is usually paid in two times each year,even though the interest rate that is usually quoted is an annual rate.

A) True
B) False

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Question 163

Multiple Choice

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After owning a Cordero Company bond for five years,Gabrielle exercised an option that allowed her to exchange her bond for 20 shares of the company stock.Gabrielle owned a:

Mini-Case Penny Stock is the chairperson of Pirate Recording Company Inc.She is the person responsible for the tremendous growth this company has enjoyed over the past three years.It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli.These groups have generated profits of over $25 million. The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording.This incredible growth has delighted everyone at the company,but it has also created a major problem for Penny.Pirate Recording has never been a major player in the recording industry,primarily because of limited capital.In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment.The amount of new funds required to finance this needed expansion is $150 million.Penny has started to consult with others about how to finance this major expansion of the company. -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 prospectus is summarization of the results of detailed financial documents that a firm files with the SEC prior to being given approval to issue securities.

Tyler 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 Very Vegetarian that pay 8.5% annually.You explain that Very Vegetarian has operated for a long time,and the debenture feature makes these bonds more secure than others.

During Ben's lunch break,he logged on to his computer to find the mutual fund he wanted to buy.As he made his way around several websites,he realized that the NAV (net asset value) quoted was yesterday's close.His shares would be purchased tomorrow,with today's closing price.Looking over his shoulder,one of his coworkers suggested that he look into _________ because they are similar to mutual funds,but could be traded during the entire trading day,just like stocks.

Which of the following measures how quickly an investor has access to his/her invested funds,if they are needed?

Ina Vestor inherited $75,000 when her grandfather died and decided to invest it in the Hottie Potatee company.As a student of business,you inform her that she can call a stockbroker who will help her purchase stock on the secondary market.

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

Online investors expect more expert advice than investors using traditional brokerage firms.

The risk/return trade-off is inherent in any investment strategy.What are the five key criteria investors should consider when selecting investment options?

A preferred stock's par value establishes the base used for calculating the preferred stockholders' dividend.

An executive secretary at a major investment banking firm is asked to copy documents that detail a major merger that's going to be finalized in the next two weeks.This merger will be a positive outcome for one of the companies in this deal.The secretary is thrilled to read about the merger,plans to call her broker immediately and buy stock in the company,and suggests that you should also act on her stock tip.Since you are not employed at her firm your purchase is legal.

The over-the-counter market utilizes an electronic securities trading system.

Unlike stocks,for selling purposes,bond prices remain stable over the life of the bond.

__________ are collections of stocks that are traded on exchanges but are traded more like individual stocks than like mutual funds.

The investor will receive the face value of the bond on the ________ date.

Investors trading online:

Issuing bonds is considered debt financing.