CH 5 Flashcards
purchases 300 of these shares, the trade will occur in which one of the following markets?
A) fourth
B) over-the-counter
C) primary
D) secondary
E) third
C
Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?
A) third
B) fifth
C) fourth
D) primary
E) secondary
E
Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n):
A) initial trial issue.
B) initial public offering.
C) open-end sale.
D) break-out issue
E) public service offering.
B
A firm that specializes in arranging financing for companies is called a(n):
A) private broker.
B) floor broker.
C) investment dealer
D) marketing firm.
E) investment banking firm.
E
) The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called:
A) deploying.
B) brokering.
C) capitalizing.
D) underwriting.
E) securing.
D
The financing provided for new ventures that are frequently high-risk investments is referred to as “venture ________”.
A) leverage
B) risk funds
C) investing
D) funding
E) capital
E
Main Supplies is a publicly-traded firm with 250,000 shares of stock outstanding. If the firm issues an additional 10,000 shares, those shares will be referred to as a(n):
A) after-market underwriting.
B) seasoned equity offering.
C) supplemental offering.
D) initial public offer.
E) market expansion offer.
B
Under the provisions of a general cash offer, shares of stock are offered to:
A) institutional investors only.
B) current shareholders prior to being offered to the general public.
C) the issuer’s employees on a cash purchase basis only.
D) underwriters on a guaranteed sale basis only.
E) the general public on a “first-come” basis.
E
A public offering of securities which are offered first to current shareholders is called a(n):
A) rights offer.
B) venture offer.
C) existing shareholder offer.
D) limited offer.
E) preference offer.
A
The difference between the price an underwriter pays an issuer and the underwriter’s offering price is called the:
A) firm commitment.
B) spread.
C) underwriting capital.
D) margin.
E) offer differential.
B
When a group of underwriters jointly work together to sell a new issue of securities, the underwriters form a(n):
A) Dutch market.
B) underwriting cartel.
C) syndicate.
D) market union.
E) venture capital association.
C
When an underwriting syndicate purchases an entire issue of new securities and accepts the risk of unsold shares, the underwriting is known as a ________ underwriting.
A) Dutch auction
B) firm commitment
C) guaranteed sale
D) full-fledge
E) best efforts
B
When the issuer assumes the risk for any shares the underwriters cannot sell, the underwriting is known as a ________ underwriting.
A) Dutch auction
B) partial
C) best efforts
D) pro-rata
E) firm commitment
C
When the price of newly issued shares is determined by competitive bidding the underwriting is known as a ________ underwriting.
A) market-priced
B) rights
C) seasoned
D) Dutch auction
E) best efforts
D
Which one of the following is the federal agency which regulates the financial markets in the U.S.?
A) National Association of Securities Dealers
B) Over the Counter Commission
C) Securities and Exchange Commission
D) Federal Reserve
E) Treasury Department
C
16) The document that must be prepared in order to receive approval for a stock offering is called a:
A) offering agreement.
B) tombstone.
C) prospectus.
D) offering paper.
E) regulatory report.
C
A preliminary document provided to investors who are interested in a stock offering is
called a(n):
A) draft offer.
B) redherring.
C) prospectus.
D) inquiry form.
E) green shoe.
B
A securities dealer is a(n):
A) firm which charges a commission for arranging a transaction.
B) person who buys securities for his or her own account on an exchange floor.
C) intermediary who arranges trades between a buyer and a seller.
D) trader who buys and sells from his or her inventory.
E) trader who transacts business on behalf of a securities issuer.
D
Which one of the following best describes a broker?
A) person who buys securities for his or her own account on an exchange floor
B) trader who buys and sells from his or her inventory
C) trader who transacts business on behalf of a securities issuer
D) intermediary who arranges trades between a buyer and a seller
E) firm which charges a commission for arranging a transaction
D
Which one of the following prices will an individual investor receive if he or she sells
shares of Intel?
A) offer
B) issue
C) ask
D) bid
E) Dutch
D
Which one of the following prices will an investor pay to purchase shares of stock that are currently outstanding?
A) ask
B) option
C) bid
D) primary
E) issue
A
The profit a dealer makes on a purchase and resale of shares of stock is called the:
A) float.
B) margin.
C) spread.
D) offer.
E) bid.
C
A private equity fund:
I. is set up as a limited partnership
II. usually uses a 2/20 fee structure
III. place no constraints on manager compensation
IV. typically have a stated life of 7 to 10 years
A) I and III only I
B) I, II and IV only
C) I, II, III, and IV
D) I and II only
E) I, II and III only
B
Which of the following is correct regarding the compensation paid to private equity fund managers?
A) Managers typically receive a high percentage management fee but no portion of - fund profits.
B) Management compensation is usually subject to a “clawback” provision to limit the
performance fees.
C) Managers typically receive 20 percent of fund profits but no separate management
fee.
D) Fees paid to fund managers do not reduce the net return of the fund.
E) “Carried interest” refers to the interest fund managers earn on performance fees.
B
An owner of a trading license on the NYSE is called a:
A) dealer.
B) trader.
C) member.
D) shareholder.
E) broker.
c
An NYSE Supplemental Liquidity Provider:
I. can trade the same stocks as designated market makers
II. can trade only from offices outside the exchange
III. must quote bid or ask quotes a certain percent of the day
IV. is paid 30 cents per 100 shares traded -
A) I and II only
B) I, II and III only
C) I, II, and IV only
D) I, II, III and IV
E) I and III only
B
The party who serves as a dealer for a few securities on an exchange floor and is obligated to maintain an orderly market for those securities is called a:
A) house broker.
B) member.
C) designated market maker.
D) floor trader.
E) floor broker.
C
A tradingfloor broker:
A) executes customers’ orders in exchange for a commission.
B) trades a limited number of securities and is obligated to maintain an orderly market
for those securities.
C) executes orders on behalf of commission brokers in exchange for afee.
D) is a NYSE member who trades on the floor for his or her personal account.
E) is any party who owns a NYSE trading license.
C
