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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 121

Multiple Choice

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Another term for portfolio strategy is:

A) modulation model
B) formula model
C) allocation model
D) equity model

E) None of the above
F) All of the above

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Question 122

Multiple Choice

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Maggie owns 10% or 50,000 common shares of a small biotech company.Although she has enjoyed a lot of control,Maggie realizes that in order for the firm to acquire the funds to grow in a recessionary economy,it will need to issue more stock.Unless she and others exercise preemptive rights,

A) the company will surely begin to pay dividends.
B) the new issue will dilute her ownership.
C) the new issue will decrease the market price of the stock.
D) The new issue will be traded on the secondary market.

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

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Question 123

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One of the criticisms of the Dow Jones Industrial Average is that it does not include enough stocks to provide a good representation of the entire stock market.

The maturity date represents the date on which a corporation must pay investors the principal face value)of their bond.

Issuing bonds is considered debt financing.

Diversification means buying several different types of investments with the funds you have available for investment.

Only government employees represent institutional investors.

Institutional investors include insurance companies,individual investors,and mutual funds.

The disadvantages of selling stock to obtain long-term financing include:

Ellie owns stock in Rotary Technologies.Her stock provides a priority claim on dividend payments and on the firm's assets in the event of liquidation.However,her ________ stock ownership does not offer her voting rights.

Peak Performance Sporting Goods,Inc. ,needs a large amount of funds to expand its operation and open new stores.Jackson is one of a team of finance professionals that is working on Peak Performance's initial public offering.Peak Performance will partner with an investment banker to assist in pricing and selling several million original issue shares of company stock.Jackson just received word that the investment bank is willing to _____________ the issue.This means the investment bank will purchase the entire issue at a discount,and sell it for full price to interested investors.

An investor placing a market order with a broker agrees to buy or sell a stock immediately at the best price available.

A bond sold with a sinking fund provision requires the firm to allow a stockholder to exchange his/her bond for a specified number of shares of common stock.

After operating for years as a privately held corporation,MidAtlantic Ironworks plans to publicly trade its stock.As a midsized firm,MidAtlantic wants to avoid excessive paperwork,and the fear of being delisted in the future.The ________ provides the best fit for MidAtlantic's plans.

The degree of risk in mutual fund investments remains nearly the same from one fund to the next.

When stock prices decline steadily,investors refer to the market as a ________ market.

Par value reflects the current market price for a stock.

Dan wanted to start investing some of his monthly earnings in stocks.He planned to diversify his holdings between blue chips,growth,and income type stocks.After consulting with a financial planner,he now understands the difference between these three types.The difference is:

Investment bankers are in the business of underwriting securities.They profit from purchasing the new stock offering of a corporation at a discount,and then selling those shares of stock to the public at the market price.

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