Question 1

Explain how a Dutch auction operates and why a firm might choose to sell its securities in this manner.

Accepted Answer

In a Dutch auction, potential investors ...

Question 2

Which of the following are true statements? I. Venture capitalists tend to be long-term investors in a firm.
II)  Venture capital is relatively easy to obtain for most new firms.
III)  Venture capitalists generally have an exit strategy.
IV)  Venture capitalists tend to specialize in one type of financing for a select type of firm.

Accepted Answer

A)   I and II only
B)   III and IV only
C)   I and III only
D)   I and IV only
E)   II and IV onlyF) B) and D)
G) C) and D)

Question 3

Which one of the following is an underwriting of securities where the offer price is determined by investor bids?

Accepted Answer

A)   Private placement
B)   Best efforts underwriting
C)   Initial public offering
D)   Green Shoe option
E)   Dutch auctionF) A) and E)
G) C) and D)

Question 4

The quiet period is designed to do which one of the following?

Accepted Answer

A)   Prevent the original investors in a firm from selling their shares and destabilizing a security's price during the first six months of public trading.
B)   Ensure that all potential investors have fair access to identical information.
C)   Ensure that all bidders are heard in a Dutch auction.
D)   Stabilize the aftermarket.
E)   Quiet the market so the SEC can fairly evaluate a new securities offer.F) A) and B)
G) B) and E)

Question 5

Lisa is interested in purchasing 1,000 shares of TJH, Inc. when the shares are issued. Her broker just gave Lisa a preliminary prospectus on these shares for her to review as she waits for the shares to be cleared for sale. What is the name of this prospectus?

Accepted Answer

A)   Green Shoe
B)   Rights offer
C)   Red herring
D)   Spread
E)   TombstoneF) None of the above
G) A) and E)

Question 6

Stock prices tend to _____ following the announcement of a new equity issue and tend to _____ following the announcement of a new debt issue.

Accepted Answer

A)   increase; increase
B)   increase; decrease
C)   increase; remain relatively constant
D)   decrease; increase
E)   decrease; remain relatively constantF) A) and C)
G) A) and D)

Question 7

What is the primary purpose of a lockup agreement?

Accepted Answer

A)   Ensures the lead underwriter maintains an economic interest in the IPO it is managing
B)   Ensures the issuer of new securities receives a minimally agreed upon amount from the issue
C)   Ensures no research reports are issued during the waiting period
D)   Ensures company insiders maintain an economic interest in the issuer of an IPO for a minimum period of time
E)   Ensures an IPO is not underpriced by more than 5 percentF) C) and D)
G) C) and E)

Question 8

Provide two arguments in favor of IPO underpricing and two arguments against IPO underpricing.

Accepted Answer

Students should select from the followin...

Question 9

What is the group of underwriters called who share both the risks and the marketing responsibilities for a securities offering?

Accepted Answer

A)   Syndicate
B)   Underwriting cartel
C)   Firm commitment group
D)   Dutch auction group
E)   Venture capitalistsF) A) and C)
G) A) and B)

Question 10

Which one of the following is an aftermarket function performed by the underwriters of a securities issue?

Accepted Answer

A)   Distributing the registration statements
B)   Distributing the red herrings
C)   Filing a letter of comment with the SEC
D)   Exercising the Green Shoe option
E)   Setting the market priceF) C) and D)
G) A) and B)

Question 11

Which one of the following specifies the length of time that must pass after an IPO before insiders are permitted to sell their shares?

Accepted Answer

A)   Lockup period
B)   Quiet period
C)   Comment period
D)   Green Shoe period
E)   Rights offer periodF) C) and D)
G) D) and E)

Question 12

Wholesale Foods would like to sell 1,500 shares of stock using a Dutch auction. The bids received are as follows:  What is the total amount the issuer will receive from this auction? Ignore costs.

Accepted Answer

A)   $58,500
B)   $57,000
C)   $56,500
D)   $54,000
E)   $51,000F) A) and B)
G) B) and C)

Question 13

Northern Air would like to sell 700 shares of stock using the Dutch auction method. The bids received are as follows:  Bidder B will receive _____ shares and pay a price per share of _____.

Accepted Answer

A)   0; $0
B)   69; $42.25
C)   69; $42.00
D)   210; $42.00
E)   $300; $40.00F) A) and E)
G) A) and B)

Question 14

Gee Whiz Underwriters retains the difference between its buying price and its offering price on new securities. What is this amount called?

Accepted Answer

A)   Markup
B)   Commission
C)   Rights price
D)   Spread
E)   OfferF) All of the above
G) A) and B)

Question 15

Which one of the following tends to be true for the average investor?

Accepted Answer

A)   They frequently earn initially high returns on IPOs when shares are undersubscribed.
B)   They generally receive their full allocation of shares even when an IPO is oversubscribed.
C)   They often encounter the "winner's curse".
D)   They are protected from losses by the Green Shoe provision.
E)   Average investors are not allowed to purchase IPOs at the offer price.F) A) and E)
G) A) and C)

Question 16

The total direct costs of a debt issue, when expressed as a percentage of gross proceeds, tends to:

Accepted Answer

A)   increase as the quality of the debt increases.
B)   decrease as the size of the issue decreases.
C)   decrease when the bonds are convertible rather than straight.
D)   decrease as the proceeds of the bond issue increase.
E)   be relatively the same regardless of the type or quality of the debt issue.F) A) and E)
G) B) and E)

Question 17

Sly's just arranged a 3-year direct business loan. Which one of the following terms matches this loan arrangement?

Accepted Answer

A)   Term loan
B)   Private placement
C)   Rights offer
D)   Seasoned offer
E)   Shelf offerF) D) and E)
G) None of the above

Question 18

Which one of the following is the name given to a registration of securities under SEC 415 which permits a firm to issue the securities over a two-year period?

Accepted Answer

A)   Seasoned registration
B)   Negotiated registration
C)   Shelf registration
D)   Extended registration
E)   Delayed registrationF) A) and C)
G) B) and C)

Question 19

Northern Importers wants to raise $58 million to expand its operations into South America. The company will sell new shares of common stock using a general cash offering. The underwriters charge a 7.8 percent spread, the administrative costs are $411,000, and the offer price is $36 per share. How many shares of stock must be sold if the firm is to raise the funds it desires?

Accepted Answer

A)   1,648,315 shares
B)   1,759,792 shares
C)   1,811,502 shares
D)   1,989,415 shares
E)   2,051,515 sharesF) B) and D)
G) D) and E)

Question 20

Assume the SEC approved the registration statement for a new securities issue this morning. Which one of the following statements must be true about this issue?

Accepted Answer

A)   The red herrings can now be distributed as the distribution was awaiting the SEC approval.
B)   The waiting period started when the approval was received this morning.
C)   The SEC believes the issue will be a profitable investment for all purchases made at the offer price.
D)   The issuer is following all the required rules and regulations in regards to this issue.
E)   The final prospectuses were all delivered or the SEC would not have approved the issue.F) B) and E)
G) A) and C)

Exam 15: Raising Capital

Which one of the following tends to be true for the average investor?

Correct Answer
verified

The total direct costs of a debt issue, when expressed as a percentage of gross proceeds, tends to:

Correct Answer
verified

Explain how a Dutch auction operates and why a firm might choose to sell its securities in this manner.

Correct Answer
verified
In a Dutch auction, potential investors ...
View Answer

Which one of the following is an underwriting of securities where the offer price is determined by investor bids?

Correct Answer
verified

Which one of the following is the name given to a registration of securities under SEC 415 which permits a firm to issue the securities over a two-year period?

Correct Answer
verified

Stock prices tend to _ following the announcement of a new equity issue and tend to _ following the announcement of a new debt issue.

Correct Answer
verified

Sly's just arranged a 3-year direct business loan. Which one of the following terms matches this loan arrangement?

Correct Answer
verified

Provide two arguments in favor of IPO underpricing and two arguments against IPO underpricing.

Correct Answer
verified
Students should select from the followin...
View Answer

Wholesale Foods would like to sell 1,500 shares of stock using a Dutch auction. The bids received are as follows: What is the total amount the issuer will receive from this auction? Ignore costs.

Correct Answer
verified

Which one of the following specifies the length of time that must pass after an IPO before insiders are permitted to sell their shares?

Correct Answer
verified

The quiet period is designed to do which one of the following?

Correct Answer
verified

Which one of the following is an aftermarket function performed by the underwriters of a securities issue?

Correct Answer
verified

What is the primary purpose of a lockup agreement?

Correct Answer
verified

Assume the SEC approved the registration statement for a new securities issue this morning. Which one of the following statements must be true about this issue?

Correct Answer
verified

Gee Whiz Underwriters retains the difference between its buying price and its offering price on new securities. What is this amount called?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Lisa is interested in purchasing 1,000 shares of TJH, Inc. when the shares are issued. Her broker just gave Lisa a preliminary prospectus on these shares for her to review as she waits for the shares to be cleared for sale. What is the name of this prospectus?

Correct Answer
verified

Northern Air would like to sell 700 shares of stock using the Dutch auction method. The bids received are as follows: Bidder B will receive _ shares and pay a price per share of _.

Correct Answer
verified

What is the group of underwriters called who share both the risks and the marketing responsibilities for a securities offering?

Correct Answer
verified

Exam 15: Raising Capital

Which one of the following tends to be true for the average investor?

Correct AnswerverifiedShow Answer

The total direct costs of a debt issue, when expressed as a percentage of gross proceeds, tends to:

Correct AnswerverifiedShow Answer

Explain how a Dutch auction operates and why a firm might choose to sell its securities in this manner.

Correct AnswerverifiedIn a Dutch auction, potential investors ...View AnswerShow Answer

Which one of the following is an underwriting of securities where the offer price is determined by investor bids?

Correct AnswerverifiedShow Answer

Which one of the following is the name given to a registration of securities under SEC 415 which permits a firm to issue the securities over a two-year period?

Correct AnswerverifiedShow Answer

Stock prices tend to _____ following the announcement of a new equity issue and tend to _____ following the announcement of a new debt issue.

Correct AnswerverifiedShow Answer

Sly's just arranged a 3-year direct business loan. Which one of the following terms matches this loan arrangement?

Correct AnswerverifiedShow Answer

Provide two arguments in favor of IPO underpricing and two arguments against IPO underpricing.

Correct AnswerverifiedStudents should select from the followin...View AnswerShow Answer

Wholesale Foods would like to sell 1,500 shares of stock using a Dutch auction. The bids received are as follows: What is the total amount the issuer will receive from this auction? Ignore costs.

Correct AnswerverifiedShow Answer

Which one of the following specifies the length of time that must pass after an IPO before insiders are permitted to sell their shares?

Correct AnswerverifiedShow Answer

The quiet period is designed to do which one of the following?

Correct AnswerverifiedShow Answer

Which one of the following is an aftermarket function performed by the underwriters of a securities issue?

Correct AnswerverifiedShow Answer

What is the primary purpose of a lockup agreement?

Correct AnswerverifiedShow Answer

Assume the SEC approved the registration statement for a new securities issue this morning. Which one of the following statements must be true about this issue?

Correct AnswerverifiedShow Answer

Gee Whiz Underwriters retains the difference between its buying price and its offering price on new securities. What is this amount called?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Lisa is interested in purchasing 1,000 shares of TJH, Inc. when the shares are issued. Her broker just gave Lisa a preliminary prospectus on these shares for her to review as she waits for the shares to be cleared for sale. What is the name of this prospectus?

Correct AnswerverifiedShow Answer

Northern Air would like to sell 700 shares of stock using the Dutch auction method. The bids received are as follows: Bidder B will receive _____ shares and pay a price per share of _____.

Correct AnswerverifiedShow Answer

What is the group of underwriters called who share both the risks and the marketing responsibilities for a securities offering?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
In a Dutch auction, potential investors ...
View Answer

Correct Answer
verified

Correct Answer
verified

Stock prices tend to _ following the announcement of a new equity issue and tend to _ following the announcement of a new debt issue.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Students should select from the followin...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Northern Air would like to sell 700 shares of stock using the Dutch auction method. The bids received are as follows: Bidder B will receive _ shares and pay a price per share of _.

Correct Answer
verified

Correct Answer
verified