1: Primary Market

Question 1

The purpose of the ________ market is to assist businesses and other entities in acquiring new money from investors.

Answer 1

primary market

Question 2

The primary market is managed by ____________. They use outright purchases, best-effort arrangements, shelf registrations, and private placements to facilitate the sale of new securities.

Answer 2

investment bankers

Question 3

What is a syndicate?

Answer 3

A group of investment bankers who share the risk and return of a public offering.

Question 4

An ad about the offering giving details about the issue and lists the underwriters involved in the deal in the order of their importance.

Answer 4

tombstone

Question 5

A ______ can be published after the issue has been sold.

Answer 5

tombstone

Question 6

A ______ is the front page of the registration statement which contains a paragraph in red ink indicating that the company is not attempting to sell its shares before the SEC approves the registration.

Answer 6

red herring

Question 7

What is the main difference between a red herring and a prospectus?

Answer 7

A red herring omits the selling price and the size of the issue.

Question 8

What does a firm-commitment mean in regards to an IPO?

Answer 8

This means the investment banker buys the offering from the firm and resells it to the investors. THE INVESTMENT BANKER BEARS THE RISK IN THIS CASE.

Question 9

How are most IPO offerings done?

Answer 9

on a firm-commitment basis

Question 10

When the investment banker acts as an agent for the issuing firm it is doing so on a…

Answer 10

best-effort basis

Question 11

This means that a firm can file one registration statement for a relatively large block of securities and then sell parts of it over a 2-year period.

Answer 11

shelf registration

Question 12

Two advantages to shelf-registration are…

Answer 12

1. Tends to reduce red tape and expenses

2. It sometimes eliminates the underwriting fee

Question 13

When new issues are sold in large lots to a small group of buyers, it is called a…

Answer 13

private placement

Question 14

What is lettered stock?

Answer 14

1. stock which can be resold only if it has been fully paid for and owned for a period of at least one year
2. volume restrictions on the number of shares that can be sold if the shares are resold prior to being held for 2 years