Question 1

Private firms that need a large equity investment but are not yet in a position to go public may attempt to obtain funding from a venture capital (VC)fund.

Accepted Answer

Venture capital funds specialize in providing financing to startups and early-stage companies that have high growth potential but are too risky for traditional bank loans or not ready for a public offering.

Question 2

The total cost of engaging in an IPO is usually about 1 percent of the total proceeds.

Accepted Answer

The total cost of engaging in an Initial Public Offering (IPO) is typically much higher, ranging from 5% to 7% of the total proceeds, covering underwriting fees, legal, accounting, and other associated costs.

Question 3

Whenever _____ the stock price will be driven up.

Accepted Answer

When demand exceeds supply, it means more people want to buy the stock than sell it, which typically drives the price up due to increased competition among buyers.

Question 4

Which of the following is  NOT  a part of the over-the-counter market?

Accepted Answer

The New York Stock Exchange is a formal exchange, not part of the over-the-counter market, which includes platforms like OTCQB, OTC Pink, and the OTC Bulletin Board.

Question 5

A firm has a current stock price of $15.32. The firm's annual dividend is $1.14 per share. The firm's dividend yield is ​

Accepted Answer

The dividend yield is calculated by dividing the annual dividend per share by the current stock price per share and then multiplying by 100 to get a percentage. So, for this firm, the dividend yield is ($1.14 / $15.32) * 100 = 7.44 percent.

Question 6

In general, secondary offerings cause an immediate increase in the market price of the stock.

Accepted Answer

Secondary offerings often lead to a decrease in the market price of a stock because they increase the supply of the stock available for sale, which can dilute the value of existing shares.

Question 7

Underwriters sell most or all of the shares of an IPO to institutional investors.

Accepted Answer

Underwriters typically allocate a significant portion of an IPO's shares to institutional investors due to their capacity to purchase large volumes of shares, which helps ensure the success of the IPO by securing a substantial amount of capital.

Question 8

Which of the following is NOT a form of shareholder activism?

Accepted Answer

Poison pills are a defensive strategy used by companies to prevent or discourage hostile takeovers, not a form of shareholder activism. Shareholder activism involves actions taken by shareholders to influence a corporation's behavior by exercising their rights as owners. Proxy contests and shareholder lawsuits are examples of such activism.

Question 9

Crowdfunding is a way that small businesses can raise funds from a number of investors over the Internet.

Accepted Answer

Crowdfunding platforms allow small businesses to raise funds by collecting small amounts of money from a large number of people over the internet, making it a viable way for startups and small enterprises to access capital.

Question 10

The Sarbanes-Oxley Act has improved transparency, but investors may still have limited information about publicly traded firms.

Accepted Answer

The Sarbanes-Oxley Act has indeed improved transparency and accountability in how companies report their financials. However, despite these improvements, there can still be limitations on the amount and type of information available to investors about publicly traded firms, due to factors like competitive secrecy, the complexity of financial disclosures, and potential gaps in regulatory requirements.

Question 11

Venture capital (VC)funds receive money from wealth investors and from pension funds that need to receive their money back in one year or less.

Accepted Answer

Venture capital funds typically have a longer investment horizon, often around 7 to 10 years, as they invest in early-stage companies that need time to grow before providing returns.

Question 12

As a result of the Sarbanes-Oxley Act, firms were able to reduce their costs of compiling and reporting financial information.

Accepted Answer

The Sarbanes-Oxley Act, enacted in 2002, actually increased the costs for firms in terms of compiling and reporting financial information due to the implementation of more stringent regulatory requirements aimed at improving the accuracy and reliability of corporate disclosures.

Question 13

The phrase "leaving money on the table" refers to investors paying more for a stock in the secondary market than was paid by those investors who were able to buy shares at the initial (offer)price on the IPO date.

Accepted Answer

The phrase "leaving money on the table" refers to the situation where the initial offering price of a stock in an IPO is set too low, resulting in immediate gains for initial investors when the stock starts trading publicly, suggesting that the company could have raised more capital by setting a higher offering price.

Question 14

Venture capital (VC)funds commonly serve as advisers to the businesses in which they invest.

Accepted Answer

Venture capital funds often provide strategic, operational, and financial advice to the companies they invest in, leveraging their experience and networks to help these businesses grow.

Question 15

Initial public offerings (IPOs)tend to occur more frequently during bearish (weak)stock markets.

Accepted Answer

IPOs are more common in bullish (strong) stock markets because investor confidence and the ability to raise capital are higher.

Question 16

Venture capital (VC)funds typically plan to exit from their original investment within about one year.

Accepted Answer

Venture capital funds usually have a longer-term investment horizon, often planning to exit their investments within 4 to 7 years, sometimes longer, depending on the growth and development stage of the company they have invested in.

Question 17

If the secondary market for a stock is inactive, then the shares are illiquid.

Accepted Answer

If the secondary market for a stock is inactive, it means there are few buyers or sellers, making it difficult to sell the shares quickly without significantly affecting the price, hence the shares are considered illiquid.

Question 18

Venture capital (VC)funds usually invest in publicly traded businesses.

Accepted Answer

Venture capital funds typically invest in private companies in the early stages of development, not in publicly traded businesses.

Question 19

In addition to extended sessions offered by the stock exchanges, some electronic communications networks (ECNs)allow for trading at any time.

Accepted Answer

ECNs provide a platform for buyers and sellers to come together for trading outside of traditional stock exchange hours, allowing for trading at virtually any time.

Question 20

Initial public offerings (IPOs)typically perform ____ on the day of the IPO and ____ for periods of a year or longer after the IPO. ​

Accepted Answer

IPOs often experience a first-day pop or initial surge in stock price due to high demand and hype, but over the longer term, many IPOs underperform the broader market as the initial excitement fades and reality sets in regarding the company's performance and prospects.

Quiz 10: Stock Offerings and Investor Monitoring

Private firms that need a large equity investment but are not yet in a position to go public may attempt to obtain funding from a venture capital (VC)fund.

The total cost of engaging in an IPO is usually about 1 percent of the total proceeds.

Whenever _____ the stock price will be driven up.

Which of the following is NOT a part of the over-the-counter market?

A firm has a current stock price of $15.32. The firm's annual dividend is $1.14 per share. The firm's dividend yield is

In general, secondary offerings cause an immediate increase in the market price of the stock.

Underwriters sell most or all of the shares of an IPO to institutional investors.

Which of the following is NOT a form of shareholder activism?

Crowdfunding is a way that small businesses can raise funds from a number of investors over the Internet.

The Sarbanes-Oxley Act has improved transparency, but investors may still have limited information about publicly traded firms.

Venture capital (VC)funds receive money from wealth investors and from pension funds that need to receive their money back in one year or less.

As a result of the Sarbanes-Oxley Act, firms were able to reduce their costs of compiling and reporting financial information.

The phrase "leaving money on the table" refers to investors paying more for a stock in the secondary market than was paid by those investors who were able to buy shares at the initial (offer)price on the IPO date.

Venture capital (VC)funds commonly serve as advisers to the businesses in which they invest.

Initial public offerings (IPOs)tend to occur more frequently during bearish (weak)stock markets.

Venture capital (VC)funds typically plan to exit from their original investment within about one year.

If the secondary market for a stock is inactive, then the shares are illiquid.

Venture capital (VC)funds usually invest in publicly traded businesses.

In addition to extended sessions offered by the stock exchanges, some electronic communications networks (ECNs)allow for trading at any time.

Initial public offerings (IPOs) typically perform on the day of the IPO and for periods of a year or longer after the IPO.

Quiz 10: Stock Offerings and Investor Monitoring

Private firms that need a large equity investment but are not yet in a position to go public may attempt to obtain funding from a venture capital (VC)fund.

The total cost of engaging in an IPO is usually about 1 percent of the total proceeds.

Whenever _____ the stock price will be driven up.

Which of the following is NOT a part of the over-the-counter market?

A firm has a current stock price of $15.32. The firm's annual dividend is $1.14 per share. The firm's dividend yield is ​

In general, secondary offerings cause an immediate increase in the market price of the stock.

Underwriters sell most or all of the shares of an IPO to institutional investors.

Which of the following is NOT a form of shareholder activism?

Crowdfunding is a way that small businesses can raise funds from a number of investors over the Internet.

The Sarbanes-Oxley Act has improved transparency, but investors may still have limited information about publicly traded firms.

Venture capital (VC)funds receive money from wealth investors and from pension funds that need to receive their money back in one year or less.

As a result of the Sarbanes-Oxley Act, firms were able to reduce their costs of compiling and reporting financial information.

The phrase "leaving money on the table" refers to investors paying more for a stock in the secondary market than was paid by those investors who were able to buy shares at the initial (offer)price on the IPO date.

Venture capital (VC)funds commonly serve as advisers to the businesses in which they invest.

Initial public offerings (IPOs)tend to occur more frequently during bearish (weak)stock markets.

Venture capital (VC)funds typically plan to exit from their original investment within about one year.

If the secondary market for a stock is inactive, then the shares are illiquid.

Venture capital (VC)funds usually invest in publicly traded businesses.

In addition to extended sessions offered by the stock exchanges, some electronic communications networks (ECNs)allow for trading at any time.

Initial public offerings (IPOs) typically perform ____ on the day of the IPO and ____ for periods of a year or longer after the IPO. ​

A firm has a current stock price of $15.32. The firm's annual dividend is $1.14 per share. The firm's dividend yield is

Initial public offerings (IPOs) typically perform on the day of the IPO and for periods of a year or longer after the IPO.