Chapter 19: The Capital Market
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a mass mailing offering a security for sale.
securities issued by the United States Postal Service.
privately placed common stock that cannot be immediately resold to the general public.
2.A preliminary prospectus is known as agolden parachute.
red herring.
blue sky.
green shoe.
3.If an investment banker has agreed to sell a new issue of securities on a best-efforts basis, the issuemost likely involves an unusually large stock offering.
most likely involves bonds instead of common stock.
results in no assumption of underwriting risk by the investment banker.
most likely involves a well-established, large company.
4.The actual market value of a right will differ from its theoretical value for all of the following reasons EXCEPT for:the size of the firm's marginal tax rate.
the amount of transactions costs incurred.
investor speculation.
the irregular exercise and sale of rights over the subscription period.
5.In a common stock rights offering the subscription price is generally:set equal to the current market price of the stock.
set below the current market price of the stock.
set above the current market price of the stock.
set after the stock goes "ex-rights."
6. When the investment banker bears the risk of not being able to sell a new security at the established price, this is known as:a best efforts offering.
underwriting.
shelf registration.
making a market.
7.To say that there is "asymmetric information" in the issuing of common stock or debt means thatinvestors have nearly perfect information.
the markets have nearly perfect information.
investors have more accurate information than management has.
management has more accurate information than investors have.
8.In calculating the value of one right when the stock is selling "rights-on," the analyst needs to know the number of rights needed to buy one share of stock and:the subscription price per share.
the transactions costs involved.
the price-earnings ratio of the firm's stock.
the length of the rights offering period.
9.A best efforts offering is sometimes used in connection with a of new, long-term securities.private placement
privileged subscription
public issue
all of the above
10. permits what is known as a shelf registration.SEC Rule 144
SEC Rule 144a
SEC Rule 415
SEC Form 13D
11.A company can ensure the complete success of a rights offering by making use of astandby arrangement.
oversubscription privilege.
green shoe provision.
shelf registration.
12.The market price of K-T-Lew Corporation's common stock is $60 per share, and each share gives its owner one subscription right. Four rights are required to purchase an additional share of common stock at the subscription price of $54 per share. If the common stock is currently selling "rights-on," the theoretical value of a right is closest to$0.96
$1.20
$1.50
$6.00
13.(See Question 12 above.) The theoretical value of one share of K-T-Lew common stock when it goes "ex-rights" is closest to$54.00
$58.50
$58.80
$59.04
14.Financial intermediaries .do not invest in new long-term securities
include insurance companies and pension funds
include the national and regional stock exchanges
are usually underwriting syndicates
15.The Sarbanes-Oxley Act of 2002 (SOX) was largely a response to:a series of corporate and accounting frauds involving Enron, Arthur Andersen, WorldCom, and numerous others.
a dramatic rise in the US trade deficit.
charges of excessive compensation to top corporate executives.
rising complaints by investors and security analysts over the financial accounting for stock options.
The following item is NEW to the 13th edition.
16.Because of US "Securities Offering Reform"
only seasoned issuers
only well-known seasoned issuers (WKSIs)
only seasoned issuers and well-known seasoned issuers (WKSIs)
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Why does a company issue stock quizlet?
Companies issue common stock to raise money to start up their business and then to help pay for its ongoing activities.
Why might an investor want to invest in the stock market?
Stocks can be a valuable part of your investment portfolio. Owning stocks in different companies can help you build your savings, protect your money from inflation and taxes, and maximize income from your investments.
Why do companies issue securities?
Companies issue shares to raise money from investors who tend to invest their money. This money is then used by companies for the development and growth of their businesses.
What determines the price of a stock in the market quizlet?
Investors' expectations of the future profitability of firms are crucial in determining the prices of stocks.