Question 1

Only accredited investors can legally buy stock offered in an initial public offering.

Accepted Answer

While accredited investors may have exclusive access to certain types of offerings or investment opportunities, anyone can legally buy stock in an initial public offering as long as they meet certain legal requirements set by the Securities and Exchange Commission. However, some companies may choose to only sell shares to institutional investors or high net worth individuals in the IPO process.

Question 2

Exchange­traded funds are simply mutual funds that invest in safe and highly liquid assets.

Accepted Answer

While ETFs are a type of fund that can invest in a variety of assets, including safe and liquid ones, they are not exclusively limited to those types of assets. ETFs can also invest in more complex and risky assets such as derivatives, commodities, and currencies. Additionally, ETFs are traded on stock exchanges like individual stocks, whereas traditional mutual funds are bought and sold through the mutual fund company.

Question 3

An open­end mutual fund issues a fixed number of shares and invests the money received from selling these shares in a portfolio of assets.

Accepted Answer

An open-end mutual fund does not have a fixed number of shares. Instead, the fund continually issues and redeems shares based on demand from investors. The money received from selling these shares is invested in a portfolio of assets.

Question 4

Underwriting is an arrangement in which an investment banker agrees to purchase all shares of a public offering at an agreed­upon price.

Accepted Answer

Underwriting involves an investment banker buying all shares of a public offering from the issuer at a set price, assuming the risk of selling them to the public.

Question 5

Firms that issue securities receive financial capital from the sale of these securities when they are sold on the primary market, but not when they are sold on the secondary market.

Accepted Answer

In the primary market, firms receive capital directly from investors when securities are initially issued. In the secondary market, securities are traded between investors, and the issuing firm does not receive any capital from these transactions.

Question 6

An initial public offering is the first time a company issues stock to be purchased by the general public.

Accepted Answer

An initial public offering (IPO) is indeed the first time a company issues stock to be purchased by the general public.

Question 7

Accredited investors are individuals, businesses, or other organizations that meet specific financial requirements set by the SEC.

Accepted Answer

Accredited investors must meet specific financial requirements set by the SEC, such as having a net worth of at least $1 million or an annual income of at least $200,000.

Question 8

Public offerings are usually quicker, simpler, and less expensive than private placements.

Accepted Answer

Private placements are typically quicker, simpler, and less expensive than public offerings because they involve a smaller pool of investors and less regulatory scrutiny. Public offerings require extensive disclosure and compliance with securities laws, which can be time-consuming and costly.

Question 9

Stox & Sellers is a relatively new corporation that has been working with an investment bank to carry out an initial public offering for its stock. The investment bank has agreed to a best efforts approach to selling the shares. This is good news for Stox & Sellers, because it means that the investment bank itself will purchase all of the shares at a specified price, thus guaranteeing that the firm receives a known amount of new funds.

Accepted Answer

A best efforts approach does not guarantee that all shares will be sold at a specified price. The investment bank will only make its best effort to sell the shares, but there is no guarantee of a specific price or quantity sold.

Question 10

When securities are issued in the primary market using the public offering method, securities are sold to one or more private investors under terms negotiated between the issuing firm and the investors.

Accepted Answer

When securities are issued in the primary market using the public offering method, they are offered to the public at large, not private investors. The terms of the offering are typically set by the underwriter or the issuing firm with input from the underwriter.

Question 11

Harry is thinking about investing in ETFs. If he decides to do so, he could make the purchase by calling a broker, in the same way as if he were buying separate stock issues.

Accepted Answer

ETFs can be bought through a broker in the same way as individual stocks, making it easy for investors to add them to their portfolio.

Question 12

The KelliMac Corporation is issuing new securities, and its investment bank has arranged to underwrite the issue. Under this arrangement, KelliMac's financial managers can count on raising a known amount of financial capital from the sale.

Accepted Answer

The underwriting arrangement means that KelliMac's financial managers can count on raising a known amount of financial capital from the sale, making the statement true.

Question 13

Andrew wants to make a withdrawal from his mutual fund, but he can't decide if he should sell the closed­end or open­end fund. Andrew should sell the closed­end fund since he wouldn't have to wait for the NAVPS to be determined.

Accepted Answer

Closed-end funds trade on an exchange and are priced based on supply and demand from other investors, whereas open-end funds are priced based on the net asset value per share (NAVPS) at the end of the trading day. Therefore, Andrew wouldn't have to wait for the NAVPS to be determined if he sells a closed-end fund, making it a quicker and more convenient option.

Question 14

An investment banker's main responsibility is to help firms work out the financial details of issuing new securities before a public offering. This can include assisting the firm with the planning and market assessment phase, providing assistance with SEC details, and deciding whether to sell the stock via a firm commitment or a best efforts approach.

Accepted Answer

This is a correct statement about the main responsibility of an investment banker.

Question 15

While stocks and bonds are issued first in the primary market, firms actually receive most of their financing through the sale of securities in the secondary market.

Accepted Answer

Firms may sell securities in the secondary market, but most of their financing comes from the primary market where stocks and bonds are initially issued. This is because the funds raised through primary market offerings go directly to the firm, while in the secondary market, the buying and selling of securities occurs between investors and does not provide new funds to the issuing company.

Question 16

Public offerings of newly issued securities normally raise larger amounts of money than private placements.

Accepted Answer

Public offerings involve selling securities to a large number of investors through the open market, whereas private placements involve selling securities to a small group of investors without the involvement of public exchanges. This makes public offerings more accessible to a larger pool of potential investors, ultimately resulting in the raising of larger amounts of money.

Question 17

The two basic methods of issuing securities on the secondary market are public offerings and private placements.

Accepted Answer

Public offerings and private placements are methods of issuing securities in the primary market, not the secondary market. The secondary market involves the trading of existing securities among investors.

Question 18

The secondary market is where previously issued securities are traded.

Accepted Answer

The secondary market is where previously issued securities (such as stocks or bonds) are bought and sold by investors, as opposed to the primary market where new securities are issued.

Question 19

The underwriting syndicate is a group of investment banks that purchase all shares at a specific price from firms with large public offerings.

Accepted Answer

This is an accurate definition of an underwriting syndicate.

Question 20

Under the best efforts approach a bank guarantees that the firm will sell all of its securities at a high enough price to meet its financial goals.

Accepted Answer

Under a best efforts approach, the bank agrees to use its best efforts to sell the securities but does not guarantee that all securities will be sold at a specific price or at all. The risk of selling the securities lies with the issuer, not the bank.

Quiz 10: Securities Markets: Trading Financial Resources

Only accredited investors can legally buy stock offered in an initial public offering.

Exchangetraded funds are simply mutual funds that invest in safe and highly liquid assets.

An openend mutual fund issues a fixed number of shares and invests the money received from selling these shares in a portfolio of assets.

Underwriting is an arrangement in which an investment banker agrees to purchase all shares of a public offering at an agreedupon price.

Firms that issue securities receive financial capital from the sale of these securities when they are sold on the primary market, but not when they are sold on the secondary market.

An initial public offering is the first time a company issues stock to be purchased by the general public.

Accredited investors are individuals, businesses, or other organizations that meet specific financial requirements set by the SEC.

Public offerings are usually quicker, simpler, and less expensive than private placements.

When securities are issued in the primary market using the public offering method, securities are sold to one or more private investors under terms negotiated between the issuing firm and the investors.

Harry is thinking about investing in ETFs. If he decides to do so, he could make the purchase by calling a broker, in the same way as if he were buying separate stock issues.

The KelliMac Corporation is issuing new securities, and its investment bank has arranged to underwrite the issue. Under this arrangement, KelliMac's financial managers can count on raising a known amount of financial capital from the sale.

Andrew wants to make a withdrawal from his mutual fund, but he can't decide if he should sell the closedend or openend fund. Andrew should sell the closedend fund since he wouldn't have to wait for the NAVPS to be determined.

While stocks and bonds are issued first in the primary market, firms actually receive most of their financing through the sale of securities in the secondary market.

Public offerings of newly issued securities normally raise larger amounts of money than private placements.

The two basic methods of issuing securities on the secondary market are public offerings and private placements.

The secondary market is where previously issued securities are traded.

The underwriting syndicate is a group of investment banks that purchase all shares at a specific price from firms with large public offerings.

Under the best efforts approach a bank guarantees that the firm will sell all of its securities at a high enough price to meet its financial goals.

Quiz 10: Securities Markets: Trading Financial Resources

Only accredited investors can legally buy stock offered in an initial public offering.

Exchange­traded funds are simply mutual funds that invest in safe and highly liquid assets.

An open­end mutual fund issues a fixed number of shares and invests the money received from selling these shares in a portfolio of assets.

Underwriting is an arrangement in which an investment banker agrees to purchase all shares of a public offering at an agreed­upon price.

Firms that issue securities receive financial capital from the sale of these securities when they are sold on the primary market, but not when they are sold on the secondary market.

An initial public offering is the first time a company issues stock to be purchased by the general public.

Accredited investors are individuals, businesses, or other organizations that meet specific financial requirements set by the SEC.

Public offerings are usually quicker, simpler, and less expensive than private placements.

When securities are issued in the primary market using the public offering method, securities are sold to one or more private investors under terms negotiated between the issuing firm and the investors.

Harry is thinking about investing in ETFs. If he decides to do so, he could make the purchase by calling a broker, in the same way as if he were buying separate stock issues.

The KelliMac Corporation is issuing new securities, and its investment bank has arranged to underwrite the issue. Under this arrangement, KelliMac's financial managers can count on raising a known amount of financial capital from the sale.

Andrew wants to make a withdrawal from his mutual fund, but he can't decide if he should sell the closed­end or open­end fund. Andrew should sell the closed­end fund since he wouldn't have to wait for the NAVPS to be determined.

While stocks and bonds are issued first in the primary market, firms actually receive most of their financing through the sale of securities in the secondary market.

Public offerings of newly issued securities normally raise larger amounts of money than private placements.

The two basic methods of issuing securities on the secondary market are public offerings and private placements.

The secondary market is where previously issued securities are traded.

The underwriting syndicate is a group of investment banks that purchase all shares at a specific price from firms with large public offerings.

Under the best efforts approach a bank guarantees that the firm will sell all of its securities at a high enough price to meet its financial goals.

Exchangetraded funds are simply mutual funds that invest in safe and highly liquid assets.

An openend mutual fund issues a fixed number of shares and invests the money received from selling these shares in a portfolio of assets.

Underwriting is an arrangement in which an investment banker agrees to purchase all shares of a public offering at an agreedupon price.

Andrew wants to make a withdrawal from his mutual fund, but he can't decide if he should sell the closedend or openend fund. Andrew should sell the closedend fund since he wouldn't have to wait for the NAVPS to be determined.