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Lisa is interested in purchasing 1,000 shares of TJH, Inc. when the shares are issued. Her broker just gave Lisa a preliminary prospectus on these shares for her to review as she waits for the shares to be cleared for sale. What is the name of this prospectus?


A) Green Shoe
B) Rights offer
C) Red herring
D) Spread
E) Tombstone

F) A) and D)
G) C) and E)

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Northern Importers wants to raise $58 million to expand its operations into South America. The company will sell new shares of common stock using a general cash offering. The underwriters charge a 7.8 percent spread, the administrative costs are $411,000, and the offer price is $36 per share. How many shares of stock must be sold if the firm is to raise the funds it desires?


A) 1,648,315 shares
B) 1,759,792 shares
C) 1,811,502 shares
D) 1,989,415 shares
E) 2,051,515 shares

F) B) and D)
G) All of the above

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Wholesale Foods would like to sell 1,500 shares of stock using a Dutch auction. The bids received are as follows: Wholesale Foods 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. A) $58,500 B) $57,000 C) $56,500 D) $54,000 E) $51,000 What is the total amount the issuer will receive from this auction? Ignore costs.


A) $58,500
B) $57,000
C) $56,500
D) $54,000
E) $51,000

F) A) and B)
G) C) and D)

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Gee Whiz Underwriters retains the difference between its buying price and its offering price on new securities. What is this amount called?


A) Markup
B) Commission
C) Rights price
D) Spread
E) Offer

F) C) and D)
G) None of the above

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Which of the following are true statements? I. Venture capitalists tend to be long-term investors in a firm. II) Venture capital is relatively easy to obtain for most new firms. 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.


A) I and II only
B) III and IV only
C) I and III only
D) I and IV only
E) II and IV only

F) A) and B)
G) A) and E)

Correct Answer

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Northern Air would like to sell 700 shares of stock using the Dutch auction method. The bids received are as follows: Northern Air would like to sell 700 shares of stock using the Dutch auction method. The bids received are as follows: Bidder B will receive _____ shares and pay a price per share of _____. A) 0; $0 B) 69; $42.25 C) 69; $42.00 D) 210; $42.00 E) $300; $40.00 Bidder B will receive _____ shares and pay a price per share of _____.


A) 0; $0
B) 69; $42.25
C) 69; $42.00
D) 210; $42.00
E) $300; $40.00

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

Correct Answer

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Sly's just arranged a 3-year direct business loan. Which one of the following terms matches this loan arrangement?


A) Term loan
B) Private placement
C) Rights offer
D) Seasoned offer
E) Shelf offer

F) A) and C)
G) A) and B)

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Which one of the following is the name given to a registration of securities under SEC 415 which permits a firm to issue the securities over a two-year period?


A) Seasoned registration
B) Negotiated registration
C) Shelf registration
D) Extended registration
E) Delayed registration

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

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The quiet period is designed to do which one of the following?


A) Prevent the original investors in a firm from selling their shares and destabilizing a security's price during the first six months of public trading.
B) Ensure that all potential investors have fair access to identical information.
C) Ensure that all bidders are heard in a Dutch auction.
D) Stabilize the aftermarket.
E) Quiet the market so the SEC can fairly evaluate a new securities offer.

F) All of the above
G) C) and E)

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What is the primary purpose of a lockup agreement?


A) Ensures the lead underwriter maintains an economic interest in the IPO it is managing
B) Ensures the issuer of new securities receives a minimally agreed upon amount from the issue
C) Ensures no research reports are issued during the waiting period
D) Ensures company insiders maintain an economic interest in the issuer of an IPO for a minimum period of time
E) Ensures an IPO is not underpriced by more than 5 percent

F) A) and E)
G) B) and C)

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What is the group of underwriters called who share both the risks and the marketing responsibilities for a securities offering?


A) Syndicate
B) Underwriting cartel
C) Firm commitment group
D) Dutch auction group
E) Venture capitalists

F) C) and E)
G) A) and D)

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Which one of the following is an aftermarket function performed by the underwriters of a securities issue?


A) Distributing the registration statements
B) Distributing the red herrings
C) Filing a letter of comment with the SEC
D) Exercising the Green Shoe option
E) Setting the market price

F) A) and E)
G) B) and D)

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Stock prices tend to _____ following the announcement of a new equity issue and tend to _____ following the announcement of a new debt issue.


A) increase; increase
B) increase; decrease
C) increase; remain relatively constant
D) decrease; increase
E) decrease; remain relatively constant

F) A) and C)
G) C) and D)

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The total direct costs of a debt issue, when expressed as a percentage of gross proceeds, tends to:


A) increase as the quality of the debt increases.
B) decrease as the size of the issue decreases.
C) decrease when the bonds are convertible rather than straight.
D) decrease as the proceeds of the bond issue increase.
E) be relatively the same regardless of the type or quality of the debt issue.

F) C) and D)
G) All of the above

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Provide two arguments in favor of IPO underpricing and two arguments against IPO underpricing.

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Students should select from the followin...

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Which one of the following is an underwriting of securities where the offer price is determined by investor bids?


A) Private placement
B) Best efforts underwriting
C) Initial public offering
D) Green Shoe option
E) Dutch auction

F) B) and E)
G) A) and C)

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Which one of the following tends to be true for the average investor?


A) They frequently earn initially high returns on IPOs when shares are undersubscribed.
B) They generally receive their full allocation of shares even when an IPO is oversubscribed.
C) They often encounter the "winner's curse".
D) They are protected from losses by the Green Shoe provision.
E) Average investors are not allowed to purchase IPOs at the offer price.

F) None of the above
G) B) and C)

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Which one of the following specifies the length of time that must pass after an IPO before insiders are permitted to sell their shares?


A) Lockup period
B) Quiet period
C) Comment period
D) Green Shoe period
E) Rights offer period

F) B) and D)
G) A) and B)

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Explain how a Dutch auction operates and why a firm might choose to sell its securities in this manner.

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In a Dutch auction, potential investors ...

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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?


A) The red herrings can now be distributed as the distribution was awaiting the SEC approval.
B) The waiting period started when the approval was received this morning.
C) The SEC believes the issue will be a profitable investment for all purchases made at the offer price.
D) The issuer is following all the required rules and regulations in regards to this issue.
E) The final prospectuses were all delivered or the SEC would not have approved the issue.

F) A) and E)
G) B) and E)

Correct Answer

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