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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 181

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Michael is looking for an investment that will pay a little better than what he can get from a government bond. You suggest that he consider a new issue of debenture bonds by Leafy Greens that pay 7.5% annually. You explain that Leafy Greens has been in business a long time, and the debenture feature makes these bonds more secure than others.

A) True
B) False

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Question 182

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Bill is reviewing the firms whose stocks have comprised the Dow Jones Industrial Average over the years. He discovers

A) the same 30 stocks have been used since the inception of the indicator.
B) different companies are used each year.
C) these stocks change periodically as deemed appropriate.
D) there is an even mix between big and small companies.

E) B) and D)
F) C) and D)

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Question 183

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Explain the major advantages and disadvantages of issuing stock as a source of long-term financing.

As a registered representative of a stock brokerage firm, a stockbroker works as an intermediary to buy and sell securities for clients.

The ________ is a large national electronic stock trading market.

Bondholders can sell their bonds

Game Guys, Inc., needs several million dollars to expand and follow its strategic plan. In negotiations with the investment banker, they agree to issue 50 million shares of common stock, at $25/share. If the investment banker's fee for underwriting the total sale is 5.82%, what is the discounted price that the investment bank is willing to pay Game Guys for the shares?

An investment that pools together investors' money in order to buy securities in many different companies or governments is a

Which of the following organizations provides an assessment of the relative level of risk of a particular firm's bond issue?

A sinking fund is a reserve account where the firm will periodically deposit funds in anticipation of repayment of a bond issue on the maturity date.

Callahan and Megan plan to invest in corporate securities. While Callahan plans to retire next year on his 65th birthday, Megan is celebrating her first job after college and her 22nd birthday. Which of the two investors would be well advised to choose a more conservative investment strategy?

An investment banking firm assists corporations in selling the new security issue.

Securities and Exchange Commission (SEC) rules prohibit the listing of the stock of foreign firms on U.S. stock exchanges.

The Dow Jones Industrial Average reflects the average of the eleven largest corporations traded on the New York Stock Exchange as originally selected by Charles Dow.

Before the announcement of a three-for-one stock split, the selling price for a share of stock in Fossil Oil Refineries was $150 per share. Immediately after the stock split, the probable price per share is

It is easier for a small business to raise funds through a stock issuance than for a large, well-known company.

Which of the following securities provides the owner the right to vote for the corporate board of directors?

If the firm should find itself in bankruptcy, preferred stockholders would have claim to the value of any remaining assets before common stockholders.

Stocks offering investors a high dividend yield are called

Issuing bonds to obtain long-term funds legally compels a firm to pay regular ________ payments and repay the ________ at the maturity date.