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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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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) True
B) False

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Question 102

Multiple Choice

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________ represent a powerful force in the buying and selling of corporate securities.

A) Individual investors
B) Mutual banks
C) Institutional investors
D) Investment banks

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

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Question 103

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A bond offering description reads: "6s of 2020." This means the bond pays 3% interest semi-annually and matures in 2020.

Growth stocks are the stocks of corporations whose earnings are expected to grow faster than the overall economy.

With everything else constant, investors prefer a bond issued with a sinking fund compared to a bond without a sinking fund.

Which of the following securities are historically considered high quality and usually pay dividends?

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

Insider trading refers to someone who benefits unfairly from information about a security not available to the general public.

The risk associated with Firm A's bond is greater than the risk of Firm B's bond. All other things being equal, investors would be willing to pay ________ for Firm B's bond.

Avery, an executive assistant at the Newport Group, photocopied documents detailing a major merger that will be finalized in two weeks. Avery is thrilled to read about the merger, plans to call her broker immediately and buy stock in the company, and suggests that you should also act on her stock tip. Since you are not employed at her firm your purchase is legal.

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

Describe four different types of common stock that an investor may consider, depending upon the investor's strategy and risk tolerance.

Teeny Toys 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 Teeny Toys promises to pay 5% interest annually for the ten-year life of the security. Teeny Toys intends to issue

________ involve(s) computer instructions that automatically sell stocks whose value has dropped by a predetermined amount.

Which of the following describes a mutual fund that charges no commission to buy or sell its shares?

Once a stock exchange agrees to list a company, the firm can be assured that it will always be listed by that exchange.

Trading curbs motivate traders to utilize their computerized programs to reduce overall market volatility.

Though Miguel relies on his stockbroker to execute his buy and sell orders for shares of stock, he has found that the process of buying or selling a share of stock on a major stock exchange normally takes

Gregory bought a share of stock in the Marshall Manufacturing for $70. When he sold the stock later that year, he received $90. The par value of the stock is $5. Gregory capital gain is $25.

The similarities between common stocks and bonds include a face or par value and a fixed rate of return for investors.