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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 101

True/False

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Your privately held firm needs additional funding for a planned expansion. Having never issued stock to the public, your firm is well advised to seek the assistance of an investment banker prior to an initial public offering of stock.

A) True
B) False

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Question 102

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Michael and Kelly plan to invest in corporate securities. While Michael plans to retire next year on his 65th birthday, Kelly 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?

A) Michael
B) Kelly
C) A conservative investment strategy is always the best strategy for both of them.
D) It depends on whether they want to invest in stocks or bonds.

E) All of the above
F) A) and B)

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Question 103

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Both preferred stocks and bonds represent funding sources that require repayment to investors.

As interest rates increase, bond prices fall.

Firms establish a ________ so that sufficient funds are available to repay bondholders on the maturity date.

Corporations that issue preferred stock incur a legal obligation to pay dividends to those stockholders.

The over-the-counter market utilizes an electronic securities trading system.

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

For starters, investors should consider the return on investment, the liquidity and riskiness of an investment.

Cumulative preferred stockholders enjoy a promise that missed dividends will accumulate and be paid later, before any dividends are paid to common stockholders.

Applying what you have learned about investments as introduced to you in Chapter 19, put the following investments in order from least risky to riskiest. Which of following lists begin with the least risky investment and ends with the most risky? Least risky = 1; most risky = 5.

Every time someone sells a stock believing the price has reached its maximum, someone else buys it believing the price will go still higher.

Investment bankers ________ new issues of bonds or stocks by purchasing, at a discount, the entire stock or bond issue of a firm and selling the issue to interested investors at a higher price.

According to the Securities Act of 1933 it is against the law for a firm that is publicly trading securities to deny an investor from knowing how the firm is doing financially.

A company often exercises the call provision of a bond if it's available when prevailing interest rates fall below the interest rate currently being paid to bondholders.

Index funds invest in one specific type of investment; for example, an index fund might only invest in income stocks, companies whose stocks pay dividends.

The primary market allows an investor to purchase financial securities from other investors.

Issuing ________ increases a firm's debt and may adversely affect the financial community's perception of the firm.

Bonds sold at a discount are sold for more than the bond's face value.

Which of the following legislative acts created the Securities and Exchange Commission?