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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 101

Multiple Choice

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Mini-Case Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million. The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company -Penny is concerned about the interest rate risk if the company decides to issue bonds. Penny would like protection from interest rate fluctuation. Therefore, the bond issue's features should include a(n) :

A) equity proposition.
B) call provision.
C) convertibility clause.
D) collateral agreement.

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

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Question 102

Multiple Choice

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Maplewood Toy Company hopes to raise long-term capital by promising in writing to repay the principal provided by potential creditors in ten years. Additionally, the certificate issued by Maplewood promises to pay 5% interest annually for the ten year life of the security. Maplewood intends to issue:

A) stocks.
B) bonds.
C) mutual funds.
D) commodities.

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

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Question 103

Multiple Choice

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In 2008, the NYSE and Euronext acquired the , the second largest U.S. Stock Exchange.

Securities markets provide private investors a place to buy and sell stocks, bonds, and mutual funds.

Normally, the higher the risk associated with a bond issue, the higher the interest rate the organization must offer potential investors.

An initial public offering (IPO) represents the first time a corporation's stock is offered and sold to persons outside of the company.

Buying stock on margin allows investors to increase the potential rate of return made on a stock investment.

Cynthia plans to buy 100 shares of common stock in the Idaho Spud Corporation. She willingly accepts the risk of this investment because she:

Buying on margin means you are borrowing part of the value of the stock purchase from the brokerage firm.

Bond prices in the newspaper or online are quoted as a percentage of their face value of $1000. If the bond price is 103.25, this bond's value =

An organization whose members can buy and sell securities for companies and investors is known as a:

Examples of institutional investors are pension funds, mutual funds, and insurance companies.

Bonds that pay very high interest rates and typically have a higher risk of default are known as:

When investment bankers underwrite an issue, they buy at a discounted price, the entire stock issue of a firm and then sell the stock, at full price, to private investors.

A is a registered representative acting as an intermediary to buy and sell securities for clients.

Demonte owns 600 shares in the Kentucky Bluegrass Corporation and he just received notice that the firm declared a three-for-one stock split. After the split, Demonte will own shares in the firm.

An investor earns a capital gain when they sell a stock for more than they paid for it.

The stock of well-known, high quality firms, such as Coca-Cola, General Electric, and Procter & Gamble, fit the characteristics of stocks, because investors can almost always be assured a dividend and consistent stock price appreciation.

Buying a stock makes the investor an owner in the firm.

The purpose of the SEC's circuit breakers rule is to: