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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 171

True/False

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Standard and Poor's and Moody's are well-known companies that rate bonds.

A) True
B) False

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Question 172

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The Securities and Exchange Commission does not intercede in any way in the process of an IPO. Doing so would disrupt the natural process of the capital markets.

A) True
B) False

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Question 173

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Securities markets help companies raise long-term debt and equity financing.

A penny stock generally sells for a low initial price, pays regular dividends and provides consistent growth in the stock's value.

A(n) ________ refers to the first public offering of a corporation's stock.

Creating a portfolio by buying several different types of investments to spread the risk of investing is called _______________.

As a new father, Sean plans to accumulate funds over the next 18 years to help pay for his son's college education. Security markets provide Sean with:

Six years ago, Angie invested $50,000 that she inherited from her grandfather into a growth stock mutual fund. Each share of the fund cost $22/share. Yesterday, she perused a mutual fund quote on the Internet. The quotation showed (1) Year To Date Return; (2) Yield; (3) Net Asset Value; (4) Previous Close. Which of these will provide her with an indication of the present price per share she can expect to realize if she calls her broker tomorrow morning and asks her to sell the shares?

A(n) ________ represents a condensed version of the registration statement that enables prospective investors to evaluate a stock for possible purchase.

Samad wants to supplement his current investments with a high-risk, low-priced security. Which of these best fits his strategy of high risk, low price and a potentially high rate of return?

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.

Taking into account the risk/return trade-off, it would stand to reason that a secured bond holds a lower interest rate than an unsecured bond.

In the Reaching Beyond Our Borders box, one of the global investment suggestions given was to invest in global stocks listed on U.S. exchanges.

New investors may want to consider _______ funds, which are mutual funds that invest in one particular kind of stock or a particular kind of bond, or even stocks that are representative of the entire market.

Investment bankers provide ________ services by purchasing the entire new security issue from a corporation seeking to raise capital, and selling it to interested investors.

Idle Time Gaming, Inc., has reached the point 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?

Only government employees represent institutional investors.

From an investor's viewpoint, bonds generally provide a safer investment option than does the stock of the same corporation.

Firms are at a disadvantage when issuing bonds because the interest rate that they must pay to bondholders is not tax deductible.

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