Chapter 3

Question 1

What is the primary role of investment bankers?

Answer 1

They are often hired for the sale of securities into primary markets.

Question 2

What happens following an IPO if a buyer no longer wishes to hold a security?

Answer 2

It is sold in a secondary market.

Question 3

If you companies such as Microsoft wishes to officers to the public how they go about doing so?

Answer 3

They will utilize a seasoned equity offering

Question 4

What explicit costs arise from the purchase or sale of securities?

Answer 4

Taxes, brokerage fees, and bid ask spread

Question 5

What are the different types of market available?

Answer 5

Direct search, auction, dealer, broker.

Question 6

What are the goals of financial markets?

Answer 6

I.) Provide liquidity
II.) Create a low cost investment method
III.) Minimize time to trade
IV.) Create price continuity
V.) Bring together buyers and sellers
VI.) Set and update financial asset prices
VII.) Reduce information costs

Question 7

What is rule 415?

Answer 7

Also known as shelf registration, rule 415 allows for company’s in good standing to gradually release shares with 24 hour notice. Therefore reducing time to market and costs.

Question 8

When were fix commissions eliminated

Answer 8

1975

Question 9

What was the NASDAQ scandal in 1994?

Answer 9

Due to the quotation system, they were inflating the bid ask spread in order to pocket a larger difference