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The difference between the underwriters' cost of buying shares in a firm commitment and the offering price of those securities to the public is called the:


A) gross spread.
B) under price amount
C) filing fee.
D) new issue premium.
E) offer price.

F) A) and D)
G) A) and C)

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The 40-day period following an IPO during which the SEC places restrictions on the public communications of the issuer is known as the _____ period.


A) silent
B) quiet
C) lockup
D) green
E) red

F) A) and E)
G) C) and E)

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Shelf registration allows a firm to register multiple issues at one time with the SEC and then sell those registered shares anytime during the subsequent:


A) 3 months.
B) 6 months.
C) 180 days.
D) 2 years.
E) 5 years.

F) B) and C)
G) A) and E)

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Wear Ever is expanding and needs $12.6 million to help fund this growth.The firm estimates it can sell new shares of stock for $35 a share.It also estimates it will cost an additional $340,000 for filing and legal fees related to the stock issue.The underwriters have agreed to a 7 percent spread.How many shares of stock must Wear Ever sell if it is going to have $12.6 million available for its expansion needs?


A) 370,376 shares
B) 385,127 shares
C) 397,543 shares
D) 454,209 shares
E) 461,806 shares

F) D) and E)
G) A) and E)

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The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations.Some recent financial information for the company is shown here: The Metallica Heavy Metal Mining (MHMM) Corporation wants to diversify its operations.Some recent financial information for the company is shown here: MHMM is considering an investment that has the same P/E ratio as the firm.The cost of the investment is $800,000,and it will be financed with a new equity issue.What would the ROE on the investment have to be if we wanted the price after the offering to be $115 per share? Assume the PE ratio remains constant. A) 18.28 percent B) 21.41 percent C) 27.63 percent D) 37.27 percent E) 40.03 percent MHMM is considering an investment that has the same P/E ratio as the firm.The cost of the investment is $800,000,and it will be financed with a new equity issue.What would the ROE on the investment have to be if we wanted the price after the offering to be $115 per share? Assume the PE ratio remains constant.


A) 18.28 percent
B) 21.41 percent
C) 27.63 percent
D) 37.27 percent
E) 40.03 percent

F) All of the above
G) C) and D)

Correct Answer

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The stock of Cleaner Home Products is currently selling for $26.40 a share.The company has decided to raise funds through a rights offering wherein every shareholder will receive one right for each share of stock they own.The new shares being offered are priced at $25 plus five rights.What is the value of one right?


A) $0.16
B) $0.23
C) $0.25
D) $0.47
E) $0.50

F) A) and E)
G) A) and D)

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Explain both a rights offering and the basic characteristics of a right.

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A rights offering is an issue of common ...

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What is the definition of a syndicate?


A) a venture capitalist
B) a group of attorneys providing services for an IPO
C) block of investors who control a firm
D) a bank that loans funds to finance the start-up of a new firm
E) a group of underwriters sharing the risk of selling a new issue of securities

F) A) and D)
G) A) and E)

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All new interstate security issues are regulated by the:


A) registration statement.
B) Green Shoe provision.
C) Securities Exchange Act of 1934.
D) Securities Act of 1933.
E) Federal Reserve Act of 1931.

F) D) and E)
G) A) and E)

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Which one of the following statements concerning venture capitalists is correct?


A) Venture capitalists assume management responsibility for the firms they finance.
B) Exit strategy is a key consideration when selecting a venture capitalist.
C) Venture capitalists limit their services to providing money to start-up firms.
D) Most venture capitalists are long-term investors in a firm.
E) A venture capitalist normally invests in a new idea and finances that idea until the newly-formed firm can issue an IPO.

F) C) and E)
G) All of the above

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The value of a right depends upon: I.the number of rights required to purchase one new share. II.the market price of the security. III.the subscription price. IV.the price-earnings ratio of the stock.


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

F) B) and D)
G) None of the above

Correct Answer

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The date on which a shareholder is officially listed as the recipient of stock rights is called the:


A) issue date.
B) offer date.
C) declaration date.
D) holder-of-record date.
E) ex-rights date.

F) A) and B)
G) D) and E)

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You currently own 8 percent of the 3.5 million outstanding shares of Webster Mills.The company has just announced a rights offering with a subscription price of $28.One right will be issued for each share of outstanding stock.This offering will provided $9 million of new financing for the firm,ignoring all issue costs.Assume that all rights are exercised.What will be your new ownership position if you opted to sell your rights rather than exercise them personally?


A) 7.33 percent
B) 7.46 percent
C) 7.87 percent
D) 8.00 percent
E) 8.21 percent

F) A) and B)
G) None of the above

Correct Answer

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Which of the following should be considered when selecting a venture capitalist? I.level of involvement II.past experiences III.termination of funding IV.financial strength


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

F) A) and B)
G) C) and D)

Correct Answer

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Miller & Chase is offering $4 million of new securities to the general public.Which SEC regulation governs this offering?


A) Regulation A
B) Regulation C
C) Regulation G
D) Regulation Q
E) Regulation R

F) B) and D)
G) A) and B)

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Which one of the following statements is correct concerning the costs of issuing securities?


A) Domestic bonds are generally more expensive to issue than equity IPOs.
B) Abnormal returns are rarely associated with seasoned issues.
C) A seasoned offering is typically more expensive on a percentage basis than an IPO.
D) There tends to be substantial economies of scale when issuing securities.
E) The costs of issuing convertible bonds tend to be less on a percentage basis than the costs of issuing straight debt.

F) B) and C)
G) B) and E)

Correct Answer

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You own 15 percent or 13,500 shares of Printers,Etc.These shares have a total market value of $435,000.By what percentage will the total value of your investment in this firm change if the company sells an additional 10,000 shares of stock at $30 a share and you do not buy any?


A) -1.37 percent
B) -1.21 percent
C) -0.69 percent
D) 1.03 percent
E) 1.29 percent

F) All of the above
G) B) and C)

Correct Answer

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The Warm Shoe Co.has concluded that additional equity financing will be needed to expand operations and that the needed funds will be best obtained through a rights offering.It has correctly determined that as a result of the rights offering,the share price will fall from $100 to $90 ($100 is the rights-on-price;$90 is the ex-rights price,also known as the when-issued price) .The company is seeking $18 million in additional funds with a per-share subscription price of $50.How many shares of stock are outstanding,before the offering? (Assume that the increment to the market value of the equity equals the gross proceeds of the offering. )


A) 324,000
B) 360,000
C) 500,000
D) 1,440,000
E) 3,600,000

F) B) and E)
G) B) and C)

Correct Answer

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Which one of the following is a key goal of the aftermarket period?


A) collection of largest number of Dutch auction bids as possible
B) best determination of a fair offer price for an upcoming IPO
C) price support for a new issue of securities
D) establishment of a broad-based underwriting syndicate for an upcoming IPO
E) widest distribution of red herrings as possible

F) B) and E)
G) B) and C)

Correct Answer

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A rights offering in which an underwriting syndicate agrees to purchase the unsubscribed portion of an issue is called a _____ underwriting.


A) standby
B) best efforts
C) firm commitment
D) direct fee
E) tombstone

F) None of the above
G) A) and E)

Correct Answer

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