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Finance
Q:
The purpose of a lockup provision is to
a. keep individual investors from buying and selling stock.
b. prevent downward pressure on the stock's price.
c. increase the number of outstanding shares.
d. allocate a larger proportion of stock to institutional investors.
Q:
Possible disadvantages of private stock exchanges to investors include
a. only large institutional investors may purchase shares in privately listed stocks.
b. required disclosures may be less than those required when a firm goes public.
c. trading volume is limited.
d. required disclosures may be less than those required when a firm goes public AND trading volume is limited.
Q:
____ sell shares to investors and use the proceeds to invest in portfolios of international stocks created and managed by portfolio managers.
a. International mutual funds
b. American depository receipts
c. World equity depository receipts
d. Initial public depository receipts
Q:
The transaction costs to the issuing firm in an IPO are usually ____ percent of the funds raised.
a. 1
b. 3
c. 7
d. 25
Q:
A(n) ____ represents ownership of a foreign stock.
a. ADR
b. SEAQ
c. Nasdaq
d. AMEX
Q:
Which of the following is NOT a form of shareholder activism?
a. proxy contests
b. poison pills
c. shareholder lawsuits
d. None of these are correct.
Q:
Which of the following is NOT true with respect to preferred stock?
a. Preferred stock usually does not allow for significant voting rights.
b. If the firm does not have sufficient earnings to pay the preferred stock dividends, the preferred shareholders may force the firm into bankruptcy.
c. Normally, the owners of preferred stock do not participate in the profits of the firm beyond the stated fixed annual dividend.
d. Payment of preferred dividends is not a tax-deductible expense.
e. All of these are correct.
Q:
If many investors quickly sell an IPO stock in the secondary market, there will be ____ on the stock's price.
a. upward pressure
b. downward pressure
c. no additional pressure
d. None of these are correct.
Q:
The prevailing price per share divided by the firm's earnings per share is known as the
a. dividend yield.
b. price-earnings ratio.
c. fully diluted earnings per share.
d. annual dividend.
Q:
Preferred shareholders
a. typically have the same voting rights as common shareholders.
b. do not share the ownership of the firm with common shareholders.
c. typically participate in the profits of the firm beyond the stated fixed annual dividend.
d. may not receive a dividend every year.
Q:
The ____ is a value-weighted average of stock prices of 30 large U.S. firms.
a. Dow Jones Industrial Average
b. Standard and Poor's 500
c. New York Stock Exchange Index
d. Nasdaq
Q:
____ are acquisitions that require substantial amounts of borrowed funds.
a. Stock repurchases
b. Corporate controls
c. Leveraged buyouts
d. Stock splits
Q:
Which of the following is NOT true regarding overallotment options?
a. They are rarely used in IPOs.
b. They allow the underwriter to allocate an additional 15 percent of the shares of the firm engaging in an IPO.
c. They allow the underwriter to purchase additional shares at the IPO offer price.
d. They can be used to help stabilize the stock price in the days after an IPO.
Q:
A road show is a way to
a. promote a secondary offering of stock.
b. arouse interest in an IPO.
c. obtain funding from a venture capital fund.
d. gain support for a shareholders lawsuit against a firms board of directors.
Q:
When a corporation first decides to issue stock to the public, it engages in a(n)
a. secondary offering.
b. initial public offering.
c. seasoned equity offering.
d. None of these are correct.
Q:
____ are portfolios of international stocks created and managed by various financial institutions.
a. International mutual funds
b. American depository receipts
c. Exchange rate options
d. Initial public offerings
Q:
Private equity funds tend to use mostly _________ when acquiring stakes in businesses.
a. their equity from issuing common stock
b. their equity from retaining earnings
c. their equity from issuing preferred stock
d. borrowed funds
Q:
American depository receipts (ADRs) are similar to
a. stock options.
b. bank deposits.
c. stocks.
d. bonds.
Q:
An example of shareholder activism is
a. communication with the firm.
b. engaging in a proxy contest.
c. filing a lawsuit against the board.
d. All of these are correct.
Q:
Shareholders can most easily measure a firm's performance by monitoring changes in its ____ over time.
a. share price
b. employee job descriptions
c. board of directors
d. asset size
Q:
Designated market movers create liquidity and maintain an orderly market at the
a. New York Stock Exchange.
b. American Stock Exchange.
c. over-the-counter market.
d. Nasdaq.
Q:
Initial public offerings (IPOs) typically perform ____ on the day of the IPO and ____ for periods of a year or longer after the IPO.
a. well; poorly
b. poorly; well
c. well; well
d. poorly; poorly
Q:
The largest organized exchange in the United States, with the largest market capitalization, is the
a. New York Stock Exchange.
b. American Stock Exchange.
c. Midwest Stock Exchange.
d. Pacific Stock Exchange.
Q:
Assume that a firm is valued at $800 million and has 6 million shares of stock outstanding. This firm's stock should have a price of $____ per share.
a. 6.00
b. 80.00
c. 133.33
d. None of these are correct.
Q:
The phrase __________ implies that the company engaged in an IPO could have received a larger amount of funds had the offer price been set at a higher level.
a. synchronizing the order
b. covering the spread
c. offsetting the flow
d. leaving money on the table
Q:
Venture capital funds commonly exit their investment in a business by
a. receiving dividends from the business.
b. engaging in a credit default swap with the business.
c. selling shares of the business when the business engages in an IPO.
d. repurchasing shares of their own stock in the secondary market.
Q:
Listing stock on a foreign stock exchange
a. may increase the stock's liquidity.
b. may enhance the firm's global image.
c. may increase the pool of potential investors, making it easier to place an entire issue of stock.
d. All of these are correct.
Q:
____ are employed by brokerage firms and execute orders for clients on the NYSE.
a. Specialists
b. Commission brokers
c. Venture managers
d. Dealers
Q:
A new stock issuance by a specific firm that already has stock outstanding is referred to as a(n)
a. stock repurchase.
b. secondary stock offering.
c. initial rights issue.
d. initial public offering (IPO).
Q:
According to financial research, there is evidence that the stock price associated with an IPO typically rises on the first day but then declines over time.
a. True
b. False
Indicate the answer choice that best completes the statement or answers the question.
Q:
The phrase "leaving money on the table" refers to investors paying more for a stock in the secondary market than was paid by those investors who were able to buy shares at the initial (offer) price on the IPO date.
a. True
b. False
Q:
The OTC market does not have a trading floor.
a. True
b. False
Q:
The investment by a private equity fund in a business is normally much larger than the typical investment by a venture capital fund.
a. True
b. False
Q:
IPOs tend to occur more frequently during recessions.
a. True
b. False
Q:
Shelf-registration allows firms quick access to funds without repeatedly being slowed by the registration process.
a. True
b. False
Q:
Underwriters sell most or all of the shares of an IPO to institutional investors.
a. True
b. False
Q:
All countries that have stock markets have similar laws regarding the financial information that must be provided by public companies.
a. True
b. False
Q:
The government enforcement of securities laws varies among countries.
a. True
b. False
Q:
International exchange-traded funds (ETFs) represent international stock indexes and thus enable investors to invest in a specific index representing a particular countrys stock market.
a. True
b. False
Q:
From a cost perspective, preferred stock is a less desirable source of capital for a firm than bonds.
a. True
b. False
Q:
To the extent that shares sold during an IPO are discounted from their appropriate price, the proceeds that the issuing firm receives from the IPO are less than it deserves.
a. True
b. False
Q:
Crowdfunding is a way that small businesses can raise funds from a number of investors over the Internet.
a. True
b. False
Q:
As a result of the Sarbanes-Oxley Act, firms were able to reduce their costs of compiling and reporting financial information.
a. True
b. False
Q:
Initial public offerings (IPOs) tend to occur more frequently during bullish stock markets.
a. True
b. False
Q:
The OTC market has several segments including the OTCQX and OTC Pink, where smaller stocks are traded.
a. True
b. False
Q:
Most individual investors attend road shows of firms that are about to go public before they purchase shares at the time of an IPO.
a. True
b. False
Q:
If shareholders become dissatisfied with a firm's performance, they may engage in a proxy contest in an attempt to change the composition of the board of directors.
a. True
b. False
Q:
If the secondary market for a stock is inactive, then the shares are illiquid.
a. True
b. False
Q:
In addition to extended sessions offered by the stock exchanges, some electronic communications networks (ECNs) allow for trading at any time.
a. True
b. False
Q:
After an IPO, firms commonly list their shares on a private stock exchange.
a. True
b. False
Q:
Index-traded funds are passive funds that track a specific index.
a. True
b. False
Q:
When Facebook engaged in its IPO, there was much uncertainty about its proper valuation, as is typical for stocks whose valuations are based on expectations of aggressive earnings growth.
a. True
b. False
Q:
Initial public offerings (IPOs) tend to occur more frequently during bearish (weak) stock markets.
a. True
b. False
Q:
A venture capital fund typically plans to exit from its original investment within about four to seven years.
a. True
b. False
Q:
A firm that wants to engage in a secondary stock offering does not need to file the offering with the SEC.
a. True
b. False
Q:
If managers believe that their firm's stock price is weak because it is undervalued by the market, they may consider repurchasing a portion of the shares that are outstanding.
a. True
b. False
Q:
Venture capital (VC) funds receive money from wealth investors and from pension funds that need to receive their money back in one year or less.
a. True
b. False
Q:
In general, secondary offerings cause an immediate increase in the market price of the stock.
a. True
b. False
Q:
The Sarbanes-Oxley Act has improved transparency, but investors may still have limited information about publicly traded firms.
a. True
b. False
Q:
Venture capital (VC) funds usually invest in publicly traded businesses.
a. True
b. False
Q:
The total cost of engaging in an IPO is usually about 1 percent of the total proceeds.
a. True
b. False
Q:
Analysts periodically communicate with high-level managers of the firms whose stock they rate.
a. True
b. False
Q:
Common law countries such as the United States, Canada, and the United Kingdom allow for more legal protections for shareholders than civil law countries such as France or Italy.
a. True
b. False
Q:
Venture capital (VC) funds commonly serve as advisers to the businesses in which they invest.
a. True
b. False
Q:
Venture capital funds typically take over businesses and manage them.
a. True
b. False
Q:
Private firms that need a large equity investment but are not yet in a position to go public may attempt to obtain funding from a venture capital (VC) fund.
a. True
b. False
Q:
The Dow Jones Industrial Average (DJIA) is a price-weighted average of stock prices of 30 large U.S. firms.
a. True
b. False
Q:
The legal protection of shareholders varies substantially among countries.
a. True
b. False
Q:
Research studies have found that the share prices of both target firms and acquiring firms react very positively to announcements of an acquisition.
a. True
b. False
Q:
Normally, only the owners of preferred stock are permitted to vote on certain key matters concerning the firm, such as the election of the board of directors.
a. True
b. False
Q:
Managers protected by golden parachutes may be more willing to make decisions that increase the companys earnings in the long run, even though the decisions adversely affect the stock price in the short run.
a. True
b. False
Q:
Indicate whether the statement is true or false.Venture capital (VC) funds typically plan to exit from their original investment within about one year.a. Trueb. False
Q:
From the perspective of the lending financial institution, there is a ____ degree of interest rate risk for ____-maturity mortgages.
a. higher; shorter
b. higher; longer
c. lower; shorter
d. higher; longer AND lower; shorter
Q:
From the perspective of the lending financial institution, interest rate risk is
a. lower on a 30-year fixed-rate mortgage than on a 15-year fixed-rate mortgage.
b. lower on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage.
c. higher on a 15-year fixed-rate mortgage than on a 30-year fixed-rate mortgage.
d. higher on a 15-year adjustable-rate mortgage than on a 30-year adjustable-rate mortgage.
Q:
In a collateralized mortgage obligation (CMO), mortgages are segmented into ____ (or classes).
a. balloon payments
b. caps
c. tranches
d. strips
Q:
Bear Stearns commonly used __________ as collateral when borrowing short-term funds, but its funding was cut off because prospective creditors questioned the quality of the collateral.
a. commercial paper
b. Treasury securities
c. its stock
d. mortgages
Q:
American International Group (AIG) was a huge _______ of credit default swaps (CDS) that offered protection against mortgage defaults, so when many mortgages defaulted during the credit crisis, AIG was obliged to _______.
a. seller; repurchase the CDS contracts it had sold
b. buyer; sell its CDS contracts to raise capital
c. buyer; surrender its CDS contracts to the Federal Reserve
d. seller; make large payments to the buyers of the CDS contracts
Q:
A __________ is a privately negotiated contract that protects investors against the risk of default on particular debt securities such as mortgage-backed securities.
a. default insurance contract
b. default risk swap
c. credit default swap
d. collateralized debt obligation
Q:
A mortgage that requires interest payments for a three- to five-year period, then full payment of principal, is a(n)
a. chattel mortgage.
b. balloon-payment mortgage.
c. variable-rate mortgage.
d. open-ended mortgage bond.
Q:
Which of the following is NOT a guarantor of federally insured mortgages?
a. Federal Housing Administration (FHA)
b. Veterans Administration (VA)
c. Federal Deposit Insurance Corporation (FDIC)
d. All of these are guarantors of federally insured mortgages.