Question 1

Welsh Corporation wants to raise capital to invest in a new project. The capital investment in the project is estimated at $525,000. The firm plans to raise the needed funds by issuing new debt. It is required to pay its investment banker 5 percent of the issue's total value. How much debt does the firm need to issue?

Accepted Answer

A)   $525,000
B)   $552,632
C)   $498,750
D)   $551,250
E)   $575,886

Question 2

The expenditure incurred by a company in connection with its initial public offer is called the _____.

Accepted Answer

A)   shelf registration cost
B)   underwriter's spread
C)   initiation cost
D)   flotation cost
E)   bid spread

Question 3

Which of the following is the correct expression for the amount of common stock or debt that a company needs to issue after taking into account the flotation costs?

Accepted Answer

A)   Amount of issue = (Net proceeds - Other flotation costs in dollars)  / (1 - Percentage flotation costs) 
B)   Amount of issue = (Net proceeds + Other flotation costs in dollars)  / (1 - Percentage flotation costs) 
C)   Amount of issue = (Net proceeds + Other flotation costs in dollars)  / (1 + Percentage flotation costs) 
D)   Amount of issue = (Net proceeds - Other flotation costs in dollars)  / (1 + Percentage flotation costs) 
E)   Amount of issue = (Net proceeds + Other flotation costs in dollars)  × (1 - Percentage flotation costs)

Question 4

Which of the following is the reason for the formation of underwriting syndicates?

Accepted Answer

A)   To ensure that the auction trading process is completed in a fair and efficient manner
B)   To enhance liquidity in large block trades by maintaining continuous up-to-date prices for the securities they are assigned
C)   To regulate the issuance and trading of stocks and bonds
D)   To provide the issuing company with the most competitive underwriting bids
E)   To spread the risk associated with the purchase and distribution of a new issue of securities

Question 5

The difference between the issuing price of a debt or equity issue and the net proceeds of the issue received by the issuing firm is known as the _____.

Accepted Answer

A)   offering price
B)   flotation cost
C)   underwriter's spread
D)   bid price
E)   premium cost C

Question 6

Dual listing of stocks and the mandatory use of the trade-through rule when trading in securities have made the stock markets fiercely competitive.

Accepted Answer

A) True 
 B)False

Question 7

Which of the following agreements were made as a part of the Basel III Accord (2010) ?

Accepted Answer

A)   Agreement to increase banks' capital (owners' equity)  requirements in an effort to reduce the risk that mega bank failures will cause future financial crises
B)   Agreement to put restrictions on the ability of the U.S. government to use taxpayers' funds to bail out large financial institutions
C)   Agreement to create new organizations to help provide consumers clear and accurate information related to credit so that better-informed decisions can be made
D)   Agreement to permit the U.S. government to purchase up to $700 billion in troubled mortgages in an attempt to improve liquidity in the financial markets
E)   Agreement to limit the salaries of executives whose companies received Troubled Asset Relief Program (TARP)  funds.

Question 8

Which of the following steps is a part of a company's Stage II decisions of raising capital?

Accepted Answer

A)   Deciding whether to go for a competitive bid or negotiated deal with the investment bank
B)   Deciding on the type of securities to be issued
C)   Deciding whether to go for a best-efforts or underwritten issue
D)   Deciding on an investment banker
E)   Deciding on the amount of capital to be issued

Question 9

In an underwritten arrangement, the investment banker assures the company coming up with a new issue of securities that the entire issue will be sold, so the investment banker bears significant risks in such an offering.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following example involves transferring income to the future as well as transferring income from the future?

Accepted Answer

A)   Buying a car with own surplus funds
B)   Buying a car with a bank loan
C)   Buying a security with own funds
D)   Buying a security with borrowed funds
E)   Selling a security to buy an insurance policy

Question 11

Unlike physical asset markets, which deal with products such as wheat, autos, real estate, and machinery, financial asset markets deal with stocks, bonds, mortgages, and other claims on real assets with respect to the distribution of future cash flows generated by such assets.

Accepted Answer

A) True 
 B)False  True

Question 12

Which of the following steps is a part of a company's Stage I decisions of raising capital?

Accepted Answer

A)   Deciding whether to go for a competitive bid or a negotiated deal with the investment bank
B)   Deciding whether to go for a best-efforts or an underwritten issue
C)   Determining the flotation costs
D)   Deciding the offering price
E)   Reevaluating the decisions about the size of the issue and the type of securities to be issued

Question 13

A document describing a new security issue and the issuing company is called a(n)  _____.

Accepted Answer

A)   registration statement
B)   underwriting statement
C)   prospectus statement
D)   shelf statement
E)   abridged statement C

Question 14

Which of the following is true about the process of setting the offering price of an issue?

Accepted Answer

A)   The offering price of the initial public offering of the stock of a privately held company is determined by a financial intermediary, whereas the offering price of the seasoned offering of a public company is determined by an investment bank.
B)   An investment banker has an easier job of selling the issue if it carries a relatively high price.
C)   An investment bank finds it easier to set the offering price of an initial public offering as compared to that of a seasoned offering.
D)   An investment bank finds it easier to set the offering price of a seasoned offering of a private company as compared to a seasoned offering of a public company.
E)   If the company is already publicly owned, the offering price will be based on the existing market price of the stock or the yield on the firm's existing bonds.

Question 15

As compared to U.S banks, foreign banks are less regulated and have fewer restrictions concerning the types of business activities they can pursue. Therefore, foreign banks often engage in numerous aspects of multilayer financial deals.

Accepted Answer

A) True 
 B)False

Question 16

The mandatory trade-through rule followed for trading in securities leads does not work to the benefit of the shareholders.

Accepted Answer

A) True 
 B)False

Question 17

During the past decade, the areas of greatest worldwide growth lay in the emerging markets of _____.

Accepted Answer

A)   China, India, and Brazil
B)   China, India, and Argentina
C)   India, Brazil, and South Africa
D)   China, Brazil, and Argentina
E)   China, South Africa, and Argentina

Question 18

Mutual funds _____.

Accepted Answer

A)   are depository institutions that are owned by its depositors, who are often members of a common organization or association
B)   are investment companies that use funds provided by savers to buy various types of financial assets, including stocks and bonds in the financial markets
C)   cater to savers, especially individuals who have relatively small savings or need long-term loans to purchase houses
D)   are organizations that distribute new issues of securities for corporations
E)   are groups of investment banking firms formed to spread the risk associated with the purchase and distribution of a new issue of securities

Question 19

A money market is the market for trading in securities with maturities over one year and includes such financial assets as stocks and long-term corporate bonds.

Accepted Answer

A) True 
 B)False

Question 20

Organizations that create various loans and investments from funds provided by depositors are known as _____.

Accepted Answer

A)   investment banks
B)   financial intermediaries
C)   derivatives markets
D)   over-the-counter markets
E)   designated market makers

Exam 3: The Financial Environment: Markets, Institutions, and Investment Banking

Correct Answer
verified

The expenditure incurred by a company in connection with its initial public offer is called the _____.

Correct Answer
verified

Which of the following is the correct expression for the amount of common stock or debt that a company needs to issue after taking into account the flotation costs?

Correct Answer
verified

Which of the following is the reason for the formation of underwriting syndicates?

Correct Answer
verified

The difference between the issuing price of a debt or equity issue and the net proceeds of the issue received by the issuing firm is known as the _____.

Correct Answer
verified
C

Dual listing of stocks and the mandatory use of the trade-through rule when trading in securities have made the stock markets fiercely competitive.

Correct Answer
verified

Which of the following agreements were made as a part of the Basel III Accord (2010) ?

Correct Answer
verified

Which of the following steps is a part of a company's Stage II decisions of raising capital?

Correct Answer
verified

In an underwritten arrangement, the investment banker assures the company coming up with a new issue of securities that the entire issue will be sold, so the investment banker bears significant risks in such an offering.

Correct Answer
verified

Which of the following example involves transferring income to the future as well as transferring income from the future?

Correct Answer
verified

Unlike physical asset markets, which deal with products such as wheat, autos, real estate, and machinery, financial asset markets deal with stocks, bonds, mortgages, and other claims on real assets with respect to the distribution of future cash flows generated by such assets.

Correct Answer
verified
True

Which of the following steps is a part of a company's Stage I decisions of raising capital?

Correct Answer
verified

A document describing a new security issue and the issuing company is called a(n) _____.

Correct Answer
verified
C

Which of the following is true about the process of setting the offering price of an issue?

Correct Answer
verified

As compared to U.S banks, foreign banks are less regulated and have fewer restrictions concerning the types of business activities they can pursue. Therefore, foreign banks often engage in numerous aspects of multilayer financial deals.

Correct Answer
verified

The mandatory trade-through rule followed for trading in securities leads does not work to the benefit of the shareholders.

Correct Answer
verified

During the past decade, the areas of greatest worldwide growth lay in the emerging markets of _____.

Correct Answer
verified

Mutual funds _____.

Correct Answer
verified

A money market is the market for trading in securities with maturities over one year and includes such financial assets as stocks and long-term corporate bonds.

Correct Answer
verified

Organizations that create various loans and investments from funds provided by depositors are known as _____.

Correct Answer
verified

Exam 3: The Financial Environment: Markets, Institutions, and Investment Banking

Correct AnswerverifiedShow Answer

The expenditure incurred by a company in connection with its initial public offer is called the _____.

Correct AnswerverifiedShow Answer

Which of the following is the correct expression for the amount of common stock or debt that a company needs to issue after taking into account the flotation costs?

Correct AnswerverifiedShow Answer

Which of the following is the reason for the formation of underwriting syndicates?

Correct AnswerverifiedShow Answer

The difference between the issuing price of a debt or equity issue and the net proceeds of the issue received by the issuing firm is known as the _____.

Correct AnswerverifiedC

Dual listing of stocks and the mandatory use of the trade-through rule when trading in securities have made the stock markets fiercely competitive.

Correct AnswerverifiedShow Answer

Which of the following agreements were made as a part of the Basel III Accord (2010) ?

Correct AnswerverifiedShow Answer

Which of the following steps is a part of a company's Stage II decisions of raising capital?

Correct AnswerverifiedShow Answer

In an underwritten arrangement, the investment banker assures the company coming up with a new issue of securities that the entire issue will be sold, so the investment banker bears significant risks in such an offering.

Correct AnswerverifiedShow Answer

Which of the following example involves transferring income to the future as well as transferring income from the future?

Correct AnswerverifiedShow Answer

Unlike physical asset markets, which deal with products such as wheat, autos, real estate, and machinery, financial asset markets deal with stocks, bonds, mortgages, and other claims on real assets with respect to the distribution of future cash flows generated by such assets.

Correct AnswerverifiedTrue

Which of the following steps is a part of a company's Stage I decisions of raising capital?

Correct AnswerverifiedShow Answer

A document describing a new security issue and the issuing company is called a(n) _____.

Correct AnswerverifiedC

Which of the following is true about the process of setting the offering price of an issue?

Correct AnswerverifiedShow Answer

As compared to U.S banks, foreign banks are less regulated and have fewer restrictions concerning the types of business activities they can pursue. Therefore, foreign banks often engage in numerous aspects of multilayer financial deals.

Correct AnswerverifiedShow Answer

The mandatory trade-through rule followed for trading in securities leads does not work to the benefit of the shareholders.

Correct AnswerverifiedShow Answer

During the past decade, the areas of greatest worldwide growth lay in the emerging markets of _____.

Correct AnswerverifiedShow Answer

Mutual funds _____.

Correct AnswerverifiedShow Answer

A money market is the market for trading in securities with maturities over one year and includes such financial assets as stocks and long-term corporate bonds.

Correct AnswerverifiedShow Answer

Organizations that create various loans and investments from funds provided by depositors are known as _____.

Correct AnswerverifiedShow Answer

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C

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True

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C

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