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Finance Flashcards

Econ Test 2 Multiple Choice

the natural rate of unemployment is the a. unemployment rate that would prevail with zero inflationb. rate associated with the highest possible level of GDPc. difference between the long-run and short run unemployment ratesd. amount of unemployment that the economy normally experiences d
the deviation of unemployment from its natural rate is calleda. the unnatural rate of unemployment b. structural unemploymentc. frictional unemploymentd. cyclical unemployment d
the sum of which of the following must be equal to the adult population a. employed, unemployedb. employed, unemployed, labor forcec. employed, unemployed, not in the labor forced. employed, unemployed, labor force, not in the labor force c
28-1the labor force of Wrexington a. increased from 2004 to 2005 and increased from 2005 to 2006b. increased from 2004 to 2005 and decreased from 2005 to 2006c. decreased from 2004 to 2005 and increased from 2005 to 2006d. decreased from 2004 to 2005 and decreased from 2005 to 2006 b
28-1the unemployment rate of Wrenxington is 2006 wasa. 6.25%b. 11.1%c. 12.5%d. 56.25% b
frictional unemployment can be the consequence ofa. workers leaving existing jobs to fine ones they like betterb. one industry declining while another is growing c. changes in the working conditions offered by competing firmsd. all of the above d
unemployment insurancea. reduces search effort and raises unemploymentb. reduces search effort and lowers unemployment c. increases search effort and raises unemploymentd. increases search effort and decreases unemployment a
when a minimum-wage law forces the wage to remain above the level that balances supply and demand, the result is a a. shortage of labor and a shortage of jobsb. shortage of labor and a surplus of jobsc. surplus of labor and shortage of jobsd. surplus of labor and surplus of jobs c
sectoral chargesa. create frictional unemployment while firms paying wages above equilibrium to attract a better pool of candidates creates structural unemploymentb. create structural unemployment, while firms paying wages above equilibrium to attract a better pool of candidates creates frictional unemployment. c. and firms paying wages above equilibrium to attract a better pool of candidates both createstructural unemployment. d.and firms paying wages above equilibrium to attract a better pool of candidates both createfrictional unemployment. a
efficiency-wage theory suggests that paying a.low wages might be profitable because they raise the efficiency of a firm’s workers. b.low wages might be profitable because they lower the efficiency of a firm’s workers. c.high wages might be profitable because they raise the efficiency of a firm’s workers. d.high wages might be profitable because they lower the efficiency of a firm’s workers. c
the field of finance primarily studiesa.how society manages its scarce resources.b.the implications of time and risk for allocating resources over time. c.firms’ decisions concerning how much to produce and what price to charge. d.how society can reduce market risk. b
Suppose you put $350 into a bank account today. Interest is paid annually and the annual interest rate is 6 percent. The future value of the $350 after 4 years is a. $414.09. b. $434.00.c. $441.87. d. $481.24. c
Imagine that someone offers you $100 today or $200 in 10 years. You would prefer to take the $100 today if the interest rate is a.4 percent. b.6 percent.c.8 percent. d.All of the above are correct. c
Compounding refers directly to a.finding the present value of a future sum of money. b.finding the future value of a present sum of money.c.changes in the interest rate over time on a bank account or a similar savings vehicle.d.interest being earned on previously-earned interest. d
Which of the following is the correct way to compute the future value of $100 put into an account that earns 4 percent interest for 10 years? a.$100(1 + .0410) b.$100(1 + .04 10)c. $100x10x(1+.04) d.$100(1 + .04)10 d
27-1Refer to Figure 27-1. Let 0A represent the distance between the origin and point A; let AB represent the distance between point A and point B; etc. Which of the following ratios best represents the marginal utility per dollar when wealth increases from $400 to $600?a. 0A/600b. AB/600c. 0B/200d. AB/200 d
The problem of moral hazard arises becausea.life is full of all sorts of risks. b.after people buy insurance, they have less incentive to be careful about their risky behavior. c. a high-risk person is more likely to apply for insurance than is a low-risk person. d. insurance companies go to great effort to avoid paying claims to their policy holders. b
if a person is risk averse, then she hasa. diminishing marginal utility of wealth, implying that her utility function gets flatter as wealth increases.b. diminishing marginal utility of wealth, implying that her utility function gets steeper as wealth increases.c. increasing marginal utility of wealth, implying that her utility function gets flatter as wealth increases.d. increasing marginal utility of wealth, implying that her utility function gets steeper as wealth increases. a
In general, as a person includes fewer stocks and more bonds in his portfolio, a.both risk and expected return rise. b.risk rises but expected return falls. c.risk falls, but expected return rises.d.both risk and expected return fall. d
If you believe that stock prices follow a random walk, then probably you a.do not believe that there is positive relationship between risk and return. b.do not believe that stock prices reflect all available information. c.believe in the validity of the efficient markets hypothesis.d.believe that it is a good idea to engage in fundamental analysis. c
We would expect the interest rate on Bond A to be higher than the interest rate on Bond B if the two bonds have identical characteristics except that a.the credit risk associated with Bond A is lower than the credit risk associated with BondB. b.Bond A was issued by the state of New York and Bond B was issued by the Exxon MobilCorporation. c. Bond A has a term of 20 years and Bond B has a term of 2 years. d.All of the above are correct. c
The primary economic function of the financial system is to a.keep interest rates low. b.provide expert advice to savers and investors. c.match one person’s consumption expenditures with another person’s capital expenditures. d.match one person’s saving with another person’s investment. d
Net exports must equal zero for any economy a.that is closed. b. for which Y=C+I+G. c. for which S=Y-C-G.d.All of the above are correct. d
In a small closed economy investment is $20 billion and private saving is $22 billion. What are public saving and national saving? a.$24 billion and $2 billion b.$20 billion and -$2 billionc.$2 billion and $24 billiond. -$2 billion and $20 billion d
Suppose that in a closed economy GDP is 11,000, consumption is 7,500, and taxes are 2,000. What value of government purchases would make national savings equal to 1,000 and at that value would the government have a deficit or surplus? a.2,500, deficitb.2,500, surplus c.1,000, deficit d.1,000, surplus a
Which of the following could explain a decrease in the equilibrium interest rate and an increase in the equilibrium quantity of loanable funds? a.The demand for loanable funds shifted rightward. b.The demand for loanable funds shifted leftward.c.The supply of loanable funds shifted rightward. d.The supply of loanable funds shifted leftward. c
Suppose a country has only a sales tax. Now suppose it replaces the sales tax with an income tax that includes a tax on interest income. This would make equilibrium a.interest rates and the equilibrium quantity of loanable funds rise. b.interest rates rise and the equilibrium quantity of loanable funds fall.c.interest rates fall and the equilibrium quantity of loanable funds rise. d.interest rates and the equilibrium quantity of loanable funds fall. b
Crowding out occurs when investment declines because a.a budget deficit makes interest rates rise. b.a budget deficit makes interest rates fall. c.a budget surplus makes interest rates rise.d.a budget surplus makes interest rates fall. a
26-2Refer to Figure 26-2. What is measured along the horizontal axis of the graph? a.the quantity of loanable funds b.the size of the government budget deficit or surplus c.the real interest rated.the nominal interest rate a
Refer to Figure 26-2. Which of the following events would shift the demand curve from D1 to D2? a.The government goes from running a budget deficit to running a budget surplus.b.Firms become optimistic about the future and, as a result, they plan to increase theirpurchases of new equipment and construction of new factories. c.A change in the tax laws encourages people to consume less and save more. d.A change in the tax laws encourages people to consume more and save less. b
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Finance Flashcards

Finance 300: Ch. 1

T/F:Financial management deals with the maintenance and creation of economic value or wealth True
T/F: The fundamental goal of a business is to maximize the retained earning to the corporation’s shareholders False
T/F: The payment of a dividend to current shareholders will have no impact on a corporation’s share price because the cash paid is not available to future potential shareholders who may want to buy the corporation’s stock False
T/F: Only a firm’s financial decisions affect its stock prices False
The primary goal of a publicly owned corporation is to… maximize shareholder wealth
A financial manager is considering two projects, A and B. A is expected to add $2 million to profits this year while B is expected to add $1 million to profits this year. Which of the following statements is MOST correct? A. The manager should select the project that causes the stock price to increase the most, which could be A or B.
Shareholder wealth maximization means maximizing the price of existing common stock
Which of the following goals of the firm are synonymous (equivalent) to the maximization of shareholder wealth? maximization of the total market value of the firm’s common stock
Which of the following is the most important goal that a corporation should strive for? maximize shareholder wealth
T/F: When making financial decisions, managers should always look at marginal, or incremental cash flows true
An investment project is acceptable if the total cash received over the life of the project exceeds the total cash spent over the life of the project false
T/F: Cash flows and profits are synonymous; in other words, higher cash flows equal higher profits false
T/F: the risk-return trade- off implies that the return on a riskless asset must be zero false
T/F: An efficient market is one where the prices of the assets traded in that market fully reflect all available info. at any instant in time true
T/F: Beginning in 2007 the United States experienced its most severe financial crisis since the Great Depression of the 1930s true
To measure value, the concept of time value of money is used to bring the future benefits and costs of a project, measured by its cash flows, back to the present
The expected return on a riskless asset is greater than zero due to an expected return for delaying consumption
The principle of risk- return trade- off means that a rational investor will only take on higher risk if he expects a higher return
Project A is expected to generate positive cash flow of $1 million in 10 years while Project B is expected to generate $500,000 in 5 years. Therefore, Project B may be preferred to Project A if the opportunity cost of money is high enough
Company A reports sales of $100,000 and net income of $15,000. Company B reports sales of $100,000 and net income of $10,000. Therefore Company A’s cash flow may be higher or lower than Company B’s cash flow even though A’s net income is higher
Investors generally don’t like risk. Therefore, a typical investor will only take on additional risk if he expects to be compensated in the form of additional return
Assume that an investor is offered a choice of a risk-free government bond or a high-risk corporate stock. Further assume that the expected return is the same for both. According to one of the axioms of finance, which investment would be chosen? the government bond
Assume that you won the Lotta Dough Lotto jackpot for​ $20 million. Further assume that you were offered a choice to receive the​ $20 million​ today, or receive it in equal installments of​ $1 million per year for 20 years. According to one of the principles of​ finance, which would you​ take? the $20 million today because it would be worth more than if you would receive it in equal installments of $1 million per year for 20 years
As of today, the most severe economic crisis to afflict the United States economy is considered to be the Great Depression of the 1930s
The financial manager most directly responsible for producing the company’s financial statements and directing its cost accounting functions is the controller
A corporate treasurer is typically responsible for each of the following duties EXCEPTa. cash management b. credit management c. cost accountingd. capital expenditures c. cost accounting
The 3 basic types of issues addressed by the study of finance are capital budgeting, capital structure decisions, and working capital management
Cash and credit management are typically the responsibility of the treasurer
Capital budgeting is concerned with what long- term investments a firm should undertake
Determining the best way to raise money to fund a firm’s long-term investments is called the capital structure decision
T/F: Its ability to raise capital by selling stock makes the corporation the best form of organization in terms of raising capital true
T/F: The procedure by which significant changes may be made to a partnership, such as admission of new partner or termination of the partnership, are governed by each state so no partnership agreement is needed false
A limited partnership provides limited liability to only to limited partners who do not participate in the management of the business
Joe is deciding whether or not to invest $10,000 in a business that has pending lawsuits against it. If Joe invests and the business loses the lawsuits, the most Joe can lose is $10,000 if Joe is a limited partner
S-type corporations have all of the following advantages EXCEPTa. they are taxed as partnershipsb. the owners have limited liabilityc. distributions are taxed twice, similar to corporate dividend paymentsd. all owners must be people, no corporations distributions are taxed twice, similar to corporate dividend payments
All of the following business organizations provide limited liability to their owners EXCEPTa. S-type corporationb. general partnershipc. corporation d. limited liability company general partnership
Bill, a local​ inventor, developed a diet pill that he believes will solve the obesity problem in the United States. Bill wants to create a new​ company, 50% owned by Bill and​ 50% owned by a major drug company. Although he believes the pills are​ safe, Bill is concerned about liability if someone becomes sick or dies. The best form of business organization for the new company is limited liability company with Bill and the drug company owning equal shares
Which of the following statements about the corporate form of business organization is​ true? A.The corporate form is preferred over the sole proprietorship because a corporation is easier to form and faces less regulation.B.The corporate form has the advantage of unlimited liability.C.The corporate form has the disadvantage of double taxation relative to a sole proprietorship.Your answer is correct.D.Sole proprietorships are the most common form of business organization because liability is limited to the amount invested in the business by the sole proprietor. C. The corporate form has the disadvantage of double taxation relative to a sole proprietorship.
Limited partnerships are not as prevalent as corporations because it is easier to transfer ownership by selling common stock than it is to sell partnership
Which of the following is an advantage of the sole proprietorship?A.no significant legal requirements for starting the businessYour answer is correct.B.easily transferred ownershipC.double taxation for its ownersD.limited liability for its owners no significant legal requirements for starting the business
The true owners of the corporation are the common stockholders
In terms of the costs to organize each, which of the following sequences is correct, moving from highest to lowest cost? A.​corporation, limited​ partnership, general​ partnership, sole proprietorshipB.general​ partnership, sole​ proprietorship, limited​ partnership, corporationC.sole​ proprietorship, general​ partnership, limited​ partnership, corporation D.sole​ proprietorship, general​ partnership, corporation, limited partnership A.​corporation, limited​ partnership, general​ partnership, sole proprietorship
Which of the statements below are true?A corporation is the business form that is typically the most complicated​ (legally) to establish.B.The sole proprietorship and the general partnership both feature unlimited liability.C.The corporation and the limited partnership both provide at least some owners with limited liability. D.all of the above D. all of the above
Advantages of the corporate form of business organizations include easier transfer of ownership
Which form of organization is free of initial legal requirements?A.general partnershipB.sole proprietorshipC.corporation D.both A and B D. both A and B
Which of the following is NOT considered to be a disadvantage of the sole proprietorship form of business organizationA.limited ability to raise capital B.life is limited to that of the ownerC.unlimited liability of business ownersD.fewer regulations and reporting requirements fewer regulations and reporting requirements
Which of the following is an advantage of the general partnership form of business organization?A.limited liability of business ownersB.low cost of formationYour answer is correct.C.double taxationD.easy ability to raise capital low cost of formation
T/F: Due to unstable world markets, most large U.S corporations do almost all of their business in the United States false
Even though many U.S companies, including General Electric, IBM, Walt Disney, and American Express, have successfully restructured their operations to expand internationally, not many foreign firms have made their mark in the United States false
In the search for profits, U.S corporations have been forced to look beyond our country’s borders. All of the following contributed to the movement EXCEPTA.information technology revolution.B.trade protectionism.Your answer is correct.C.acceptance of the free market system in Third World countries.D.collapse of communism. B. trade protectionism
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Finance Flashcards

Foundations of Financial Mgmt: Ch 1-2

What is the primary goal of financial management? Maximizing shareholder wealth.
In the past the study of finance has included: mergers and acquisitions and raising capital and bankruptcy.
Professor Merton Miller received the Nobel prize in economics for his work on: capital structure theory
Professors Harry Markowitz and William Sharpe received their Nobel prize in economics for their contributions to the: theories of risk-return and portfolio theory.
Proper risk-return management means that: The firm must determine an appropriate trade-off between risk and return.
One of the major disadvantages of a sole proprietorship is: that there is unlimited liability to the owner.
One of the major advantages of a sole proprietorship is: low operating costs.
The partnership form of an organization: avoids the double taxation of earnings and dividends found in the corporate form of organization.
Characteristics of a corporation: owned by stockholders who enjoy the privilege of limited liability. easily divisible between owners. a separate legal entity with perpetual life.
A Subchapter S corporation: has all the organizational benefits of a corporation and its income is only taxed once.
Corporate governance the relationship and exercise of oversight by the board of directors of the company.
Agency theory examines the relationship between owners of the firm and the managers of the firm.
Agency theory would imply that conflicts are more likely to occur between management and shareholders when the chairman of the board is also the chief executive officer (CEO).
Agency problems are least likely to arise in which organizational form? sole proprietorship
The increasing percentage ownership of public corporations by institutional investors has created more pressure on public companies to manage their firms more efficiently.
The Sarbanes-Oxley Act was passed in an effort to control corrupt corporate behavior.
A financial manager’s goal of maximizing current or short-term earnings may not be appropriate because: it fails to consider the timing of the benefits. increased earnings may be accompanied by unacceptably higher levels of risk. earnings are subjective
they can be defined in various ways such as accounting or economic earnings.
Maximization of shareholder wealth is a concept in which optimally increasing the long-term value of the firm is emphasized
Which of the following is not a true statement about the goal of maximizing shareholder wealth? It is a short-run point of view which takes risk into account
As mergers acquisitions, and restructuring have increased in importance, agency theory has become more important in assessing whether, shareholder goals are truly being achieved by managers in the long run.
Insider trading occurs when: someone has information not available to the public which they use to profit from trading in stocks.
The major difficulty in most insider-trading cases has been that inside trades have not been legally well defined.
Money markets would include which of the following securities? treasury bills and commercial paper.
Capital markets do not include which of the following securities: commercial paper
When a corporation uses the financial markets to raise new funds the sale of securities is made in the, primary market.
The financial markets allocate capital to corporations by reflecting expectations of the market participants in the prices of the corporations.
A corporate buy-back – or the repurchasing of shares – is an example of balance sheet restructuring.
The internationalization of the financial markets has allowed firms such as McDonalds to raise capital around the world.
Increased productivity due to technology has helped to keep corporate costs in check.
The entity that is responsible for establishing the allocation and cost of capital is investors
Benefits of social responsibility often include Better reputation
Regarding risk levels – financial managers should evaluate investor’s desire for risk
Insider trading The ability to make profits on financial securities because of having Knowledge not available to the public.
Articles of Partnership An agreement of partners specifying the ownership interest of a company
Sole Proprietorship A form of organization that represents single person ownership and offers the advantages of simplicity of decision making and low organizational and operating costs.
Corporation Separate legal entity owned by shareholders who only have limited liability.
Capital Structure Theory The study of the relative importance of debt and equity.
Agency Theory Examines the relationship between the owners of the firm and the managers of the firm.
Subchapter S corporation A form of ownership, in which profit is taxed as direct income to the stockholders and thus is only taxed once.
Partnership A form of ownership that carries unlimited liability to the owners and where the profits are taxed at individual tax rates of the owners.
Financial Capital This form of capital is found on the balance sheet under long-term liabilities and equity.
Inflation The purchasing power of the dollar shrinks over time.Primary Market, A market where the securities being traded are new public offerings.
Money Market Securities with a maturity of less than 1 year
Restructuring Redeploying the asset and liability structure of the firm.
Disinflation A leveling off or slowing down of price increases.
Capital Market Market composed of common stock, preferred stock, commercial and government bonds and other long-term securities.
Secondary Market This market trades previously issued securities.
Real Capital The high inflation rates of the 1980s caused this form of capital to hold its value better than other forms of capital during this time period.
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Finance Flashcards

Finance

American Depositary Receipt (ADR) receipt for the shares of a foreign-based corporation held in the vault of a U.S bank and entitling the shareholder to all dividends and capital gains.
Common Stock units of ownership of a public corporation.
Common stock owners typically are entitled to vote on the selection of directors and other important matters as well as to receive dividends on their holdings.
Common stock has more potential for appreciation
enterprise value a measure of a company’s value. Calculated as market capitalization plus debt and preferred shares, minus cash and cash equivalents.
enterprise value the theoretical take over price. In the vent of a buy out, an acquirer would have to take on the company’s debt, but would pocket its cash.
exchange traded fund (ETF) similar to an open-end mutual fund except that is traded on an exchange just like individual stocks are
exchange traded fund (ETF) differs from a mutual fund, where the price you pay or receive is related to that day’s closing net asset value, even if you transacted several hours earlier.
growth stock stock of a firm that is expected to have above-average increases in revenues and earnings. These firms usually retain most earnings for reinvestment and therefore pay small dividends.
limit order order to buy or sell a security at a specific price or better.
long position ownership of a security, giving the investor the right to transfer ownership to someone else by sale of by gift.
long position investor’s ownership of securities held by a brokerage firm.
margin amount a customer deposits with a broker when borrowing from the broker to buy securities.
market order order to buy or sell a security at the best available price. Most orders executed on the exchanges are ————.
preferred stock class of capital stock that pays dividends at a specified rate and that has preference over common stock in the payment of dividends and the liquidation of assets.
short sale sale of a security or commodity futures contract now owned by the seller; a technique used (1) to take advantage of an anticipated decline in the price or (2) to protect a profit in a long position.
Specialist member of a stock exchange who maintains a fair and orderly market in one or more securities.
Specialist Performs two main function: executing limit orders on behalf of other exchange members for a portion of the floor broker’s commission, and buying or selling–sometime selling short— for the ——-‘s own account to counteract temporary imbalances in supply and demand and thus prevent wide swings in stock prices.
specialist’s book record maintained by a specialist that includes the specialist’s own inventory of securities, market orders to sell short, and limit orders and stop orders that other stock exchange members have placed with the specialist.
stock screens filters used to select from a large pool of stocks a relatively small number of stock for more detailed examination.
stop order order to a securities broker to buy or sell at the market price once the security has traded at a specified price called the stop price.
value stocks stocks whose price is low relative to an estimate of value.
dividend growth model a model that determines the current price of a stock as its dividend next period divided by the discount rate less the dividend growth rate
dividend yield stock’s expected cash dividend divided by its current price.
capital gains yield dividend growth rate, or the rate at which the value of an investment grows.
common stock equity without priority for dividends or in bankruptcy.
cumulative voting a procedure in which a shareholder may cast all votes for one member of the board of directors.
straight voting procedure in which a shareholder may cast all votes for each member of the board of directors.
proxy a grant of authority by a shareholder allowing another individual to vote his or her shares.
dividends payments by a corporation to shareholders, made in either cash or stock.
preferred stock stock with dividend priority over common stock, normally with a fixed dividend rate, sometimes without voting rights.
primary market market in which new securities are originally sold to investors
secondary market market in which previously issued securities are traded among investors.
dealer an agent who buys and sells securities from inventory.
broker an agent who arranges security transactions among investors.
member is the owner of a trading license on the NYSE.
commission brokers NYSE members who execute customer orders to buy and sell stock transmitted to the exchange floor.
specialist NYSE member acting as a dealer in a small number of securities on the exchange floor; often called a market maker.
floor brokers nyse members who execute orders for commission brokers on a fee basis; sometimes called $2 brokers
SuperDOT system an electronic NYSE system allowing orders to be transmitted directly to the specialist.
floor traders NYSE members who trade for their own accounts, trying to anticipate temporary price fluctuations.
order flow flow of customer orders to buy and sell securities.
specialist’s post fixed place on the exchange floor where the specialist operates.
over-the-counter (OTC) market securities market in which trading is almost exclusively done through dealers who buy and sell for their own inventories.
electronic communications network (ECN) a web site that allows investors to trade directly with each other.
In order to win a vote for a certain director, you need 1/N+1 (number of shares outstanding) + 1
NASDAQ computer network of securities that dealers trade on a inventory basis, there is no physical location where the trading takes place, and this is part of the OTC mkt
Volume number of shares traded today
Market Cap number of shares outstanding multiplied by the current price of the share ( numerator of book value)
X Dividend Date buy stock before X, you will receive the dividend. after X, the stock will decrease in value
Book Value market cap divided by total shares outstanding
Profit Margin net income divided by sales
ROE net income divided by book value
Free Cash Flow to Common Stockholders Free cash- preferred dividends
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Finance Flashcards

Finance Ch.6

When you refer to a bond’s coupon, you are referring to which one of the following?A. Difference between the purchase price and the face valueB. Annual interest divided by the current bond priceC. Difference between the bid and ask priceD. Annual interest paymentE. Principal amount of the bond D. Annual interest payment
What is the principal amount of a bond that is repaid at the end of the loan term called? Face value
The annual interest divided by the face value of a bond is referred to as the: coupon rate.
On which date is the principal amount of a bond repaid? Maturity Date
Which one of the following terms refers to a bond’s rate of return that is required by the market place? Yield to maturity
The current yield on a bond is equal to the annual interest divided by which one of the following? Current market price
The written agreement that contains the specific details related to a bond issue is called the bond: A. indenture.
A registered form bond is defined as a bond that: C. pays coupon payments directly to the owner of record.
This morning, Jeff found a bond certificate lying on the floor of a bank. He picked it up and noticed thatthe bond matured today. He presented the bond to the bank teller and received both the principal andinterest payment. The bond that Jeff found must have been which one of the following? D. Bearer form bond
Miller Farm Products is issuing a 15-year, unsecured bond. Based on this information, you know that thisdebt can be described as a: C. debenture.
A note is: unsecured debt that is generally payable within the next ten years.
What term is used to describe an account that a bond trustee manages for the sole purpose of redeemingbonds early? D. Sinking fund
A call provision grants the bond issuer the: E. option of repurchasing the bonds prior to maturity at a pre-specified price.
The call premium is the amount by which the: D. call price exceeds the par value.
Dexter, Inc. has a bond issue outstanding. The issue’s indenture provision prohibits the firm fromredeeming the bonds during the first three years. This provision is referred to as the _____ provision. D. deferred call
Travis recently purchased a callable bond. However, that bond cannot be currently redeemed by theissuer. Thus, the bond must currently be: call protected
A protective covenant: limits the actions of the borrower.
Manning, Inc. originally issued bonds that were rated investment grade. These bonds have now beendowngraded to junk status. Which one of the following terms applies to this situation? D. Fallen angel
Which one of the following terms applies to a bond that initially sells at a deep discount and pays nointerest payments? C. Zero coupon
The price at which a dealer will purchase a bond is called the _____ price. E. bid
The price at which an investor can purchase a bond from a dealer is called the _____ price. A. asked
A bond trader just purchased and resold a bond. The amount of profit earned by the trader from thispurchase and resale is referred to as the: C. bid-ask spread.
Which one of the following is the quoted price of a bond? E. Clean price
Which one of the following is the price that an investor pays to purchase an outstanding bond? A. Dirty price
A real rate of return is defined as a rate that has been adjusted for which one of the following? A. Inflation
Which one of the following is the rate of return an investor earns on a bond before adjusting for inflation? nominal rate
Which one of the following refers to the relationship between nominal returns, real returns, and inflation? B. Fisher effect
The term structure of interest rates represents the relationship between which of the following? E. Nominal rates on default-free, pure discount bonds and time to maturity
The inflation premium: E. compensates investors for expected price increases.
Changes in interest rates affect bond prices. Which one of the following compensates bond investors forthis risk? C. Interest rate risk premium
The Treasury yield curve plots the yields on Treasury notes and bonds relative to the ____ of thosesecurities. C. maturity
Which one of the following represents additional compensation provided to bondholders to offset thepossibility that the bond issuer might not pay the interest and/or principal payments as expected? Default risk premium
Which one of the following premiums is paid on a corporate bond due to its tax status? Taxability premium
Which one of the following provides compensation to a bondholder when a bond is not readilymarketable at its full value? C. Liquidity premium
When a bond’s yield to maturity is less than the bond’s coupon rate, the bond: is selling at a premium.
The yield to maturity on a discount bond is: is greater than both the current yield and the coupon rate.
Which one of the following statements is true? A discount bond has a coupon rate that is less than the bond’s yield to maturity.
The value of a bond is dependent upon the: coupon rate and the yield to maturity.
Generally speaking, bonds issued in the U.S. pay interest on a(n) _____ basis. B. semi-annual
Which one of the following bonds is the least sensitive to changes in market interest rates?A. Zero-coupon, 10 yearB. 6 percent annual coupon, 10 yearC. Zero-coupon, 4 yearD. 8 percent annual coupon, 4 yearE. 6 percent annual coupon, 4 year 8 percent annual coupon, 4 year
An unexpected decrease in market interest rates will cause a: E. coupon bond’s yield-to-maturity to decrease.
Which of the following combinations is assured to decrease the interest rate sensitivity of a bond? Decrease in the time to maturity and an increase in the coupon rate
Which one of the following statements is correct? An indenture is a contract between a bond’s issuer and its holders.
Which of the following can generally be found in a bond’s indenture agreement?I. terms of repaymentII. names of registered shareholdersIII. protective covenantsIV. total amount of the bond issue D. I, III, and IV only
Which of the following characteristics are most commonly associated with corporate bonds issued in theU.S.?I. registered formII. bearer formIII. quarterly coupon paymentsIV. semiannual coupon payments B. I and IV only
Which one of the following might be included in a bond’s list of negative covenants? Limiting cash dividends to $1 per share or less
Which one of the following terms denotes for certain that a bond is unsecured? debenture
A bond for which no specific property has been pledged as security is classified as a: D. debenture.
Which one of the following statements concerning sinking funds is correct? Sinking funds may be used to purchase bonds in the open market.
A callable bond: may be structured to pay bondholders the current value of the bond on the date of call.
A bond has a make-whole call provision. Given this, you know that the: D. call price is inversely related to the market rate of interest.
What is the primary purpose of bond covenants? Lender protection
The primary purpose of protective covenants is to help: protect bondholders from issuer actions.
The lowest rating a bond can receive from Moody’s and still be classified as an investment-quality bond Baa
In relation to bonds, which one of the following terms has the same meaning as the term “crossover”? Fallen angel
Which one of the following terms applies to a junk bond that was originally issued with a bond rating ofAA? Fallen angel
Which of the following ratings indicate that a bond is low-quality?I. BaaII. BBIII. BIV. Ba C. II, III, and IV only
Municipal bonds are: generally callable.
Which one of the following individuals is most apt to purchase a municipal bond? Highly-compensated business owner
Zero-coupon bonds: create annual taxable income to individual bondholders.
A “floater” bond frequently has a: a put provision.
Which one of the following is a unique characteristic of an income bond? Coupon payments are dependent upon the issuer’s income
Which one of the following types of bonds should an investor purchase if he or she is primarilyconcerned about ensuring that bond ownership will increase his or her purchasing power? TIPS
Which one of the following types of bonds permits its issuer to forego paying interest payments if certainnatural events cause significant losses? C. CAT
Which one of the following statements is correct?Bond markets have less daily trading volume than equity markets.B. There are less bond issues than there are equity issues.C. Municipal bond prices are highly transparent.D. Bond markets are dealer based.E. Most bond trades occur on the NYSE. Bond markets are dealer based.
What is the price of a $1,000 face value bond if the quoted price is 102.1? $1,021.00
A bond dealer sells at the _____ price and buys at the _____ price. asked; bid
Which one of the following statements is correct regarding mortgage backed securities (MBSs)? Investors in MBSs are subject to real estate deflation risk.
The “R” in the Fisher effect formula represents the: nominal return.
An upward-sloping term structure of interest rates indicates: the nominal rate is increasing even though the real rate is constant as the time to maturity increases.
If inflation is expected to steadily decrease in the future, the term structure of interest rates will mostlikely be: D. downward-sloping.
If intermediate-term, default-free, pure discount bonds have a higher rate of return than either thecomparable shorter-term or longer-term bonds, the term structure of interest rates will be: humped
The term structure of interest rates is affected by which of the following?I. interest rate risk premiumII. real rate of interestIII. default risk premiumIV. inflation premium I, II, and IV only
Suppose that a small, rural city in the countryside of North Dakota plans to issue $150,000 worth of 10-year bonds. Which one of the following components of the bond’s yield will be affected by the fact thatno active secondary market is expected for these bonds? liquidity premium
Which one of the following bonds is most apt to have the smallest liquidity premium? treasury bill
A bond has a $1,000 face value, a market price of $1,036, and pays interest payments of $70 every year.What is the coupon rate? 7%
A $1,000 face value bond is currently quoted at 101.2. The bond pays semiannual payments of $27.50each and matures in 6 years. What is the coupon rate? E. 5.50 percent
A 6 percent bond has a yield to maturity of 6.5 percent. The bond matures in 7 years, has a face value of$1,000, and pays semiannual interest payments. What is the amount of each coupon payment? $30.00
A bond has a par value of $1,000, a current yield of 7.606 percent, and semi-annual interest payments.The bond quote is 98.6. What is the amount of each coupon payment? $37.50
A 5.5 percent $1,000 bond matures in 7 years, pays interest semiannually, and has a yield to maturity of6.23 percent. What is the current market price of the bond? C. $959.09
A $1,000 face value bond currently has a yield to maturity of 6.69 percent. The bond matures in 3 yearsand pays interest annually. The coupon rate is 7 percent. What is the current price of this bond? $1,008.18
Red Mountain, Inc. bonds have a face value of $1,000. The bonds carry a 7 percent coupon, pay interestsemiannually, and mature in 13.5 years. What is the current price of these bonds if the yield to maturity is6.82 percent? $1,015.72
A 6-year, semiannual coupon bond is selling for $991.38. The bond has a face value of $1,000 and a yieldto maturity of 9.19 percent. What is the coupon rate? 9.00 percent
A 12-year, semiannual coupon bond is priced at $1,102.60. The bond has a $1,000 face value and a yieldto maturity of 5.33 percent. What is the coupon rate? 6.50 percent
AB Builders, Inc. has 12-year bonds outstanding with a face value of $1,000 and a market price of $974.The bonds pay interest annually and have a yield to maturity of 4.03 percent. What is the coupon rate? 3.75 percent
The 7 percent annual coupon bonds of TPO, Inc. are selling for $1,021. The bonds have a face value of$1,000 and mature in 6.5 years. What is the yield to maturity? 6.59 percent
Best Lodging has $1,000 face value bonds outstanding. These bonds pay interest semiannually, mature in5 years, and have a 6 percent coupon. The current price is quoted at 101. What is the yield to maturity? 5.77 percent
The $1,000 face value bonds of Jasper International have a 7.5 percent coupon and pay interest annually.Currently, the bonds are quoted at 98.27 and mature in 3.5 years. What is the yield to maturity? 8.09 percent
Global Trade, Inc. has $1,000 face value bonds outstanding with a market price of $1,013. The bonds payinterest annually, mature in 11 years, and have a yield to maturity of 5.34 percent. What is the currentyield? 5.43 percent
The 8 percent, $1,000 face value bonds of Glenmore Foods are currently selling at $1,027. These bondshave 16 years left until maturity. What is the current yield? 7.79%
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Finance Flashcards

Everfi (Paying For Education)

When looking to finance higher education, what is the best order to look for funding sources? Grants/Scholarships – Federal Student Loans – Private Loans
Which of the following statements about the FAFSA process are TRUE? You must use the FAFSA to apply for the federal work-study program.
If you apply for federal student loans using the FAFSA form, they will fall into what main categories. Subsidized & Unsubsidized
Subsidized Loans interest paid by gov. while in school. Only avalible to students who demonstrate financial need.
Unsubsidized Loans type of federal student loan which government does not pay the interest while student is in school. Anyone can get this type of loan.
Grace Period Do not have to pay while in school, do have to start making payments six months after graduation.
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Finance Flashcards

Finance test 4

ch3 ch3
On a common-size balance sheet all accounts are expressed as a percentage of:A. sales for the period.B. total assets for the base year.C. total assets for the current year.D. total equity for the base year.E. the base year sales. Answer Ctotal assets for the current year.
A common-size income statement is an accounting statement that expresses all of a firm’s expenses as percentage of:A. taxable income.B. net income.C. total equity.D. sales.E. total assets. D. Sales
Which one of the following is a source of cash?A. decrease in inventoryB. increase in accounts receivableC. decrease in accounts payableD. decrease in long-term debtE. decrease in common stock A. Decrease in Inventory
Which one of the following is a source of cash?A. increase in accounts payableB. increase in accounts receivableC. increase in inventoryD. decrease in notes payableE. decrease in common stock A. Increase in accounts payable
Based only on the following information for Bennington Corp., did cash go up or down? By how much? Decrease in inventory $480 Decrease in accounts payable 130 Increase in notes payable 730 Increase in accounts receivable 270 A.Cash increased by $1,070B.Cash increased by $1,350C.Cash decreased by $1,610D. Cash decreased by $810E. Cash increased by $810 Decrease in inventory is a source of cash Decrease in accounts payable is a use of cash Increase in notes payable is a source of cash Increase in accounts receivable is a use of cash Changes in cash = sources – uses = $480 – 130 + 730 – 270 = $810
Activities of a firm which require the spending of cash are known as:A. cash collections.B. cash receipts.C. cash on hand.D. uses of cash.E. sources of cash. D. Uses of cash
Shareholders probably have the most interest in which one of the following sets of ratios?A. return on assets and profit marginB. price-earnings and debt-equityC. long-term debt and times interest earnedD. return on equity and price-earningsE. market-to-book and times interest earned D. Return on equity and price-earning
According to the Statement of Cash Flows, a decrease in accounts receivable will _____ the cash flow from _____ activities.A. decrease; operatingB. increase; financingC. increase; investmentD. decrease; financingE. increase; operating E. Increase; Operating
High Mountain Foods has an equity multiplier of 1.55, a total asset turnover of 1.3, and a profit margin of 7.5 percent. What is the return on equity?A. 8.94 percentB. 10.87 percentC. 15.11 percentD. 12.69 percentE. 14.38 percent Return on equity = .075 × 1.3 × 1.55 = 15.11 percentROE = Profit margin total asset turnover equity multiplier
Which one of the following is a source of cash?A. granting credit to a customerB. repurchase of common stockC. selling a new debt issueD. payment to a supplierE. purchase of inventory C. Selling a new debt issue
A firm currently has $600 in debt for every $1,000 in equity. Assume the firm uses some of its cash to decrease its debt while maintaining its current equity and net income. Which one of the following will decrease as a result of this action? Equity Multiplier
An increase in which of the following will increase the return on equity, all else constant?I. salesII. net incomeIII. depreciationIV. total equity Sales and net income
The price-sales ratio is especially useful when analyzing firms that have which one of the following?A. negative earningsB. volatile market pricesC. a negative Tobin’s QD. positive PEG ratiosE. increasing sales A. Negative Earnings
An increase in current liabilities will have which one of the following effects, all else held constant? Assume all ratios have positive values.A. increase in the cash ratioB. increase in the current ratioC. increase in the net working capital to total assets ratioD. decrease in the quick ratioE. decrease in the cash coverage ratio D. Decrease in quick ratio
Which one of the following is a use of cash?A. decrease in inventoryB. increase in notes payableC.decrease in common stockD. increase in long-term debtE. decrease in accounts receivables C. Decrease in common stock
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Finance Flashcards

Finance Chapter 2

the money market A highly liquid financial instrument with a maturity of 90 days would be traded in:the money market. the bond market. the stock market. none of these.
secondary market transaction You just purchased a share of IBM stock on the NYSE. What kind of transaction is this?Secondary market transaction. Private placement. Primary market transaction. Futures market transaction
an organized exchange The NYSE is an example of:an over-the-counter market exchange. an organized exchange. a commodities exchange. all of these.
an efficient financial system An economy with a large flow of funds requires:an efficient financial system. all of these. a lot of gold reserves. a friction-less market.
a primary market The financial market where a new security is sold for the first time is:a secondary market. an indirect financial market. none of these. a primary market.
the instruments traded in this market are close substitutes for cash The term “money market” is used because:firms that issue securities in this market are in dire need of cash. it is a market where stocks are converted into money. none of these. the instruments traded in this market are close substitutes for cash.
an investment fund A mutual fund is an example of: an endowment fund. an investment fund. a pension fund. a line of credit.
both the real rate of interest and compensation for inflation The nominal rate of interest is made up of:both the real rate of interest and compensation for inflation. a commodity cross-index return. compensation for inflation. the real rate of interest.
the business cycle The general level of interest rates tends to follow:deflation. the business cycle. the default cycle. all of these.
interest rates to increase If the supply of loan-able funds decreases relative to the demand for those funds, then we would expect: interest rates to increase. interest rates to decrease. the cost of money to remain unchanged. interest rates to remain unchanged.
lender-savers to borrower-spenders A financial system’s primary concern is funneling money from:the government to wealthy individuals. lender-savers to borrower-spenders. wealthy individuals to non-wealthy individuals. borrower-spenders to lender-savers.
over-the-counter Stocks that are traded in the _____ are typically those of smaller and lesser known firms.National Stock Exchange over-the-counter New York Stock Exchange American Stock Exchange
used-car markets Secondary financial markets are similar to: used-car markets. direct financial market. direct auction markets. new-car markets.
semistrong-form efficiency Which of the following theories states that security prices reflect all public information, but not all private information?Weak-form efficiency. Semistrong-form efficiency. Strong-form efficiency. Nominal-form efficiency.
financial intermediation The process of converting financial securities with one set of characteristics into securities with another set of characteristics is called: none of these. financial bundling. financial intermediation. financial disintermediation
a level of inflation that is higher than that anticipated at the outset of the loan If you are a borrower, which would you prefer to occur during the life of your loan? A level of inflation that is higher than that anticipated at the outset of the loan. No inflation at all. A level of inflation that is exactly as anticipated at the outset of the loan. A level of inflation that is lower than that anticipated at the outset of the loan.
10 percent If inflation is anticipated to be 5 percent during the next year, while the real rate of interest for a one-year loan is 5 percent, then what should the nominal rate of interest be for a risk-free one-year loan? 5 percent. 10 percent. 25 percent. None of these.
interest The cost of borrowing money is called: interest. return. all of these. inflation.
underwriting services Investment banking firms provide auditing services. insurance. overdraft facility. underwriting services.
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Finance Flashcards

Real Estate Finance Final

The best definition of real property is Land and anything affixed to it
Trade fixtures are personal property
The highest bundle of rights a person may enjoy under our allodial system is a(n) Fee simple estate
Economic characteristics of land include fixity of improvements
Fixity of real estate refers to its location
Leverage involves using a small amount of money to secure a large loan
One benefit of the taxpayer relief act of 1997 was to provide homeowners with broad exemptions from capital gains taxes on profits made from the sale of a personal residence
The right of possession remaining with the borrower best describes hypothentication
the Taxpayer relief act of 1997 reduced the maximum capital gains tax rate to 15%
Money can be defined with all of the following meanings except as a standard of value
Our paper money is backed by the federal gold reserves
which of the following statements is true lower interest rates create less loan activity
All of the following responsibilities are functions of the FED except buy and sell government securities
The federal open market committee (FOMC) impacts the availability of money for real estate
Mortgage bankers are a type of intermediary also known as correspondants
Which statement best describes Californias position among the states for real estate lending dollar volume by insurance companies? it is at the top
An example of a demand deposit is a(n) checking account
Of the following types of real estate loans commercial banks are most interested in interim loans
What is the major source of funds for the mortgage loans offered by savings and loan associations government grants
Which of the following lenders has the most flexibility in mortgage lending operations savings associates
Penalties for loan refusals based on the collateral location (redlining) are imposed by holden act
Life insurance companies are least interested in large apartment loans
All of the following statements are general characteristics of mortgage brokers except that they use their own capital to create new loans
Mortgage bankers manage real estate loans
Unsecured corporate bonds are known as debentures
Private real estate loan companies are primarily engaged in registered bonds
Negative amortization describes a loan balance that increases
Most real estate mortgages originate as conventional loans
Compared with 30 year fixed rate loans, 15 year fixed rate loans tend to have higher monthly payments
Loans made to borrowers with very marginal or poor credit are called subprime loans
Private mortgage insurance has led to the transfer of risk from lender to insurer
The FHA is under the jurisdiction of the HUD
The purpose of FHA insurance is to indemnify the lender against default loss
All of the following items are advantages to borrowers under the FHA insured loan programs except the
When monthly payments are insufficient to meet the interest required negative amortization occurs
Under coinsurance an FHA approved lender shares any loses with the FHA
DVA Loans require borrowers occupancy
All lenders who issue FHA loans use the same borrower credit criteria
DVA Loans are available for all of the following purposes except commercial developments
The DVA loan guarantee has a current maximum of 104,250
Under the DVA when the CRV is less than the agreed purchase price the buyer can take all of the following actions except requiring the seller to accept the CRV price
All of the following items are characteristics of DVA loans except a(n)
A novation is a(n) entirely new loan
The farm credit system is owned by the farmers and ranchers
HUD is involved in all of the following activities except supervising
All of the following properties are except from the interstate from the interstate land sales disclosure act except improved parcels sold with homes
HUD’s Housing choice voucher program provides rent subsidies
Any citizen injured by discrimination in housing practices may, under the Fair Housing Act of 1968 file a compliant with the local comissioner
The truth in lending act is popularly referred to as regulation Z
The illegal act of trying to convince a homeowner to sell a home by saying that property values in the community are dropping is referred to as the inducement of blockbusting
The equal credit opportunity act prohibits lender discrimination based on all of the following reasons except redlining
Under the equal credit opportunity act, lenders must inform rejected applicants in writing why their credit was denied
The community reinvestment act requires lenders to meet community credit needs
Which of the following clauses makes the delinquency on a senior loan a delinquency on the existing junior loan cross default clause
Which of the following clauses allows an exiting senior loan to be refinanced without disturbing the junior loans status lifting clause
A feature of the graduated payment loan is a (n) negative amortization in the early years
An very low initial intent rate offered on an adjustable-rate loan is referred to as a margin
The index on an adjustable rate mortgage loan must be beyond the control of the lender
Borrowers using adjustable rate mortgages must receive an illustrative example showing how the payments and loan balances on a $10,000 loan
A reverse annuity mortgage has the lender pay the borrower monthly payments
All of the following statements about construction loans are true except that the loan is drawn for a short period of time
Including personal property in the collateral of a real estate loan would create a package loan
A hard money mortgage would be a(n) loan for cash
A wraparound loan equals the balance of the existing loan plus the equity financed
A deed of trust on a home is a voluntary liens
Which of the following items is considered a lien deed of trust
A note would be used with all of the following types of loans except a(n) unsecured loan
An acceleration clause in a real estate loan allows the lender to call in the loan balance
In california, a real property sales contract is foreclosed by using a judicial foreclosure
Which of the following clauses is a form of prepayment penalty lock in clause
The original maker of a real estate loan is completely relieved of any contingent obligations when the purchaser of the collateral assumes the loan
The price a property would most likely bring if it were exposed for sale in the open market for a reasonable period of time is the property’s market value
Ona financial statement liabilities include all of the following items except notes receivable
Net worth is described as assets plus liabilities
What is the total maximum debt ratio that underwriters apply apply to borrowers applying for conventional loans 36%
In determining the net income for an apartment property, all of the following expenses would be deducted from the gross income except
A duplex has a monthly income of $400 per unit, Using an annual gross rent multiplier of 8, its value estimate is 6400
A synopsis of the recorded history of a property is called a(n) abstract
What is guaranteed to a home buyer who purchases title insurance validity and accuracy of the title search
Monthly payments on a fixed rate mortgage loan may change due to changes in the index
The transfer of the right, title, and interest in a property of one person to another is known as novation
The sale of mortgage loans on the secondary market has a positive impact on the economy by stabilizing mortgage money market
the secondary mortgage market provides all of the following benefits except freeing capital for lenders
fannie mae replaced its free market system auction with a(n) administered priced system
Fannie Mae participates in all of the following activities except making loans directly to borrowers
What is the relationship between the interstate rate paid on pass through certificates and the interest on the loans in the pool the rate on the pass through certificate is lower
Freddie Mac’s prospector is an electronic underwriting service
Disintermediation seriously affected
A breach of one or more of the conditions or terms of a loan agreement is a default
An agreement to waive payments for a period of time is a(n) moratorium
To avoid foreclosure a lender and borrower might agree to all of the following actions except a deed in lieu of foreclosure
The purpose for recasting a loan when the borrower is in default is to increase the interest rate
When filed, a lis pendens indicates a pending foreclosure action
A deed of trust differs form a mortgage in which of the following areas strict foreclosure
Which of the following techniques is used in foreclosing a deed of trust judicial foreclosure
All of the following are advantageous to a seller under a sale-leaseback-buyback except .
split fee financing is a form of Lender participation
which of the following terms best describes a partnership among a developer, owner, and financier joint venture
Refinancing one property to purchase another is known as pyramiding
If a home is owned as a community property and one spouse dies, what is the maximum net value of the descendants estate that the survivor can inherit without paying estate taxes
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Finance Flashcards

Business Finance Chapter 15

Venture capital is most apt to be the source of funding for a: new, high-risk venture.
Modern Art Online is preparing to sell new shares of stock to the general public. As part of this process, the firm just filed the required paperwork with the SEC that contains the material information related to this issue of stock. What is the name associated with this paperwork? Registration statement
What is the legal document called that is provided to potential investors and describes a new security offering? Prospectus
Caitlyn is interested in purchasing 1,500 shares of ABC, Inc., when the shares are issued. Her broker just gave her a preliminary prospectus to review as she waits for the shares to be cleared for sale. What is the name of this prospectus? red herring
What is the advertisement, commonly found in financial newspapers, that announces a public offering of securities and provides the name of the underwriters called? Tombstone
Marti’s BBQ is offering 5,000 shares of stock to the general public on a cash basis. Which one of the following terms best applies to this offer? General cash offer
Deep Water Marina has 12,000 shares of stock outstanding that were sold to the general public last year. The firm has just decided to issue an additional 4,000 shares and will make these shares available to the firm’s current shareholders before making any offer to the general public. Which type of offer is this? Rights offer
An initial public offering refers to: the first sale of equity shares to the general public
A new issue of common stock offered to the general public by a firm that is currently publicly held is called a(n): seasoned equity offering.
A.B. Securities assists issuers by pricing and selling new securities to the general public. Which one of the following terms best fits the role that A. B. Securities is playing? Underwriter
GW Underwriters retains the difference between its buying price and its offering price on new securities. What is this amount called? Spread
What is the group of underwriters called who share both the risks and the marketing responsibilities for a securities offering? Syndicate
Which one of the following terms is defined as an underwriting for which the underwriters assume full responsibility for any unsold shares? Firm commitment underwriting
Florida Farms recently offered 12,000 shares of stock for sale but received payment for only 10,500 shares since that was all the shares the underwriters could sell. What type of underwriting was this? Best efforts
Which one of the following is an underwriting of securities where the offer price is determined by investor bids? Dutch auction
Which one of the following describes a Green Shoe provision? Overallotment option
Which one of the following specifies the length of time that must pass after an initial public offering (IPO) before insiders are permitted to sell their shares? Lockup period
AJ’s Glass Works just arranged a three-year direct business loan. Which one of the following terms matches this loan arrangement? Term loan
Which one of the following best describes a private placement? Long-term loan by a limited number of investors
A registration of securities under SEC 415 which permits a firm to issue the securities over a two-year period is which type of registration? Shelf registration
Which one of the following projects is most apt to be financed with venture capital? Prototype for a newly patented hand tool by an individual inventor
Which statement is true? turf is a ****
Which of the following are important factors to consider when seeking a venture capitalist?
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? The issuer is following all the required rules and regulations in regard to this issue.
When issuing securities, which of the following can occur prior to receiving the approval by the SEC of a registration statement? Oral offer to buy shares and Distribution of a preliminary prospectus
You own 400 of the 21,000 outstanding shares of DLK stock. The firm just announced that it will be issuing an additional 3,000 shares to the general public in a cash offer at $16 per share. What type of event are you participating in if you opt to purchase 100 of these additional shares? Seasoned equity offering
Currently, you own 1.2 percent of the outstanding shares of Home Security. The firm has decided to issue additional shares of stock and has given you the first option to purchase 1.2 percent of those additional shares. What type of offer is this? Rights offer
Which of the following duties belong to the underwriters of a firm commitment securities offer? II. Duty to set the offer priceIII. Duty to distribute the offered sharesIV. Duty to purchase any unsold shares
Who determines the offer price in a Dutch auction? highest offer price
Which one of the following is an aftermarket function performed by the underwriters of a securities issue? Exercising the Green Shoe option
Which one of the following statements is correct? A firm’s existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced.
A lockup agreement ensures: Restriction on insiders that prevents them from selling their shares of an IPO for a specified time period
Space Tours wants to do an IPO but is not comfortable that underwriters will set the most optimal offer price for the securities. Which one of the following might the firm consider to address this uncertainty? Dutch auction underwriting
Which one of the following is an intended result of a lockup agreement? Temporary support of the market price of IPO shares
The quiet period is designed to: ensure that no one with inside information can selectively disclose it to give particular investors an unfair advantage.
Which of the following have been offered as justification for IPO underpricing? I. Young firms tend to be very risky.II. The best IPOs are oversubscribed.III. Underwriters like to avoid lawsuits.
Which one of the following is probably the most effective means of increasing investors’ interest in an IPO? Underpricing the IPO
Which statement is correct? A firm’s existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced.
An average individual investor who participates in an IPO: encounters the winners curse
Stock prices tend to ________ following the announcement of a new equity issue and tend to ________ following the announcement of a new debt issue. decrease; remain relatively constant
If the market price of existing publicly traded shares declines due to the announcement of a seasoned issue of stock, the decline is referred to as which one of the following? Abnormal Return
The Green Shoe option is most apt to be exercised when an IPO is ________ and ________. underpriced; oversubscribed
The total direct costs of a debt issue, when expressed as a percentage of gross proceeds, tends to: Decrease as the proceeds of the bond issue increase.
Which of the following are true statements? 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.
Which one of the following correctly states a qualification an issuer must meet to be qualified to use Rule 415 for shelf registration? The issuer must have an investment grade rating.
Shelf registration: type of public offering where certain issuers are allowed to offer and sell securities to the public without a separate prospectus for each act of offering and without the issue of further prospectus.
Which one of the following statements is correct? A firm’s existing shareholders would prefer that new securities be issued when those securities are overpriced rather than underpriced.
The maximum amount of securities a company can issue in a 12-month period through crowdfunding is: 5 million
What is the maximum amount an investor can invest in crowdfunding issues in a 12-month period? 10,000
Bressler’s would like to sell 600 shares of stock using the Dutch auction method. The bids received are as follows:Bidder A will receive ________ shares and pay a price per share of ________. Bidder C will receive no allocation. 600*15=9000
Winston’s Grocers would like to sell 1,000 shares of stock using the Dutch auction method. The bids received are as follows:Bidder C will receive ________ shares and pay a price per share of ________. 0 and 0
Garden Veggies 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. $56,000