Question 1

Which of the following describes the type of venture capital firms who are wealthy individuals who make equity investments?

Accepted Answer

Angel venture capitalists are wealthy individuals who make equity investments in start-up companies. Blue chip venture capital firms are large and well-established venture capital firms that invest in big, established companies. Institutional venture capital firms consist of large investment institutions such as pension funds, corporations, and endowments. Expertise venture capitalists invest in companies in their industry of expertise.

Question 2

Which of the following is the type of financing that includes capital funds invested or venture capitalists?

Accepted Answer

Equity financing involves selling ownership in a company in exchange for capital, which can come from venture capitalists or other investors.

Question 3

Which of these is the type of loan where the firm would receive the funds as soon as the bank approved the loan?

Accepted Answer

Spot loans are a type of loan where the firm would receive the funds as soon as the bank approved the loan, without any delay or waiting period. Loan commitment agreements are a promise by the bank to provide the loan at a future date or upon certain conditions. Take-down loans allow the borrower to draw down funds as needed over time. Back-end loans require repayment at the end of the loan term, rather than in regular installments.

Question 4

Which of the following is an unsecured short-term promissory note issued by a public firm to raise short-term cash, often to finance working capital requirements?

Accepted Answer

Commercial paper is an unsecured short-term promissory note issued by a public firm to raise short-term cash, often to finance working capital requirements. Option A refers to a company's first-time issuance of stock to the public; option B refers to early-stage funding provided by wealthy individuals; and option C refers to investment capital provided to start-ups or small businesses in exchange for ownership stakes or equity.

Question 5

Which of these is a contractual commitment to loan the firm a certain maximum amount at a given interest rate?

Accepted Answer

Loan commitment agreements are a contractual commitment from the lender to provide the borrower with a certain amount of credit at a fixed or variable interest rate. This commitment is usually valid for a specified period and cannot be revoked by the lender. Spot loans are loans that are usually made for a specific purpose and a short duration. Take-down loans refer to an agreement where the borrower takes down or borrows the funds as needed from the total committed funds. Back-end loans are typically provided to the borrower after the completion of a project or the achievement of certain milestones.

Question 6

Which of these is the type of loan where the interest payments change over the life of the loan?

Accepted Answer

Variable-rate loans have interest payments that change over time based on market conditions or other factors. Fixed-rate loans have a set interest rate throughout the life of the loan. Take-down loans and spot loans are not relevant in this context.

Question 7

Which of the following is a security issue in which the investment bank guarantees the issuer a price for newly issued securities by buying the whole issue at a fixed price from the security issuer, and where the investment bank then seeks to resell the securities to investors at a higher price?

Accepted Answer

This is a classic example of firm commitment underwriting where the investment bank guarantees to purchase the whole issue of securities from the issuer and takes the risk of reselling them at a higher price to investors. This can be a security issue if the investment bank overestimates the demand for the securities and is unable to resell them at a higher price, leading to potential losses.

Question 8

Which of these is the type of loan where the firm makes fixed interest payments over the life of the loan?

Accepted Answer

Fixed-rate loans have a set interest rate that does not change throughout the life of the loan. This means that the firm will make fixed interest payments over the course of the loan. Variable-rate loans, on the other hand, have an interest rate that can fluctuate over time. Take-down loans and spot loans are not types of loans based on interest rate structure.

Question 9

Which of these is the type of loan where the firm borrows against pre-negotiated lines of credit or loan commitments?

Accepted Answer

The answer of Which of these is the type of...

Question 10

Which of these is the fee charged by a bank for making funds available through a loan commitment?

Accepted Answer

The answer of Which of these is the fee charged...

Question 11

Which of the following best describes the type of financing provided by government agencies such as the Small Business Administration?

Accepted Answer

The answer of Which of the following best describes the...

Question 12

Which of the following is a security issue in which the underwriter does not guarantee a firm price to the issuer and acts more as a placing or distribution agent for a fee?

Accepted Answer

Best efforts underwriting is a type of underwriting in which the underwriter does not guarantee a firm price to the issuer and acts more as a placing or distribution agent for a fee. This means that the underwriter will make their best efforts to sell the securities to investors, but there is no guarantee that they will be able to sell all of them. As a result, the issuer bears more risk in a best efforts underwriting than in a firm commitment underwriting.

Question 13

Which of the following describes the type of venture capital firms whose sole purpose is to find and fund the most promising new firms?

Accepted Answer

The answer of Which of the following describes the type...

Question 14

Which of these is the fee charged by a bank on any unused balances of a loan commitment line at the end of the loan commitment period?

Accepted Answer

A back-end (or commitment) fee is charged by the bank on any unused balances of a loan commitment line at the end of the loan commitment period. Simple interest expense refers to the interest charged on the principal amount borrowed, while discounted interest refers to the interest rate that is lower than the market rate. Up-front (or facility) fees are charged by the bank for setting up the loan at the beginning.

Question 15

Which of the following refers to when the bond issuing firm invites bids from a number of underwriters?

Accepted Answer

In a competitive sale, the bond issuing firm invites bids from multiple underwriters and selects the one with the most favorable terms. This is different from a negotiated sale where the bond issuer selects a specific underwriter to work with. Commercial sale and auction are not terms commonly used in the context of bond issuance.

Question 16

Which of these are the markets in which corporations raise funds through new stock issues?

Accepted Answer

Corporations raise funds through new stock issues in the primary market. The secondary market is where investors trade previously issued securities among themselves. The commercial market refers to the market for goods and services, not securities. The over the counter market is a decentralized market where securities that are not listed on a stock exchange are traded.

Question 17

Which of these is defined as a professionally managed pool of money used to finance new and often high-risk firms?

Accepted Answer

Venture capital is a professionally managed pool of money that is invested in new and often risky businesses with high growth potential. This type of financing is typically provided to start-up companies and early-stage ventures that have limited operating history and may not have access to traditional forms of financing such as bank loans or public offerings. Venture capitalists provide funding in exchange for an ownership stake in the company and typically play an active role in helping the company grow and succeed.

Question 18

Which of the following is the firm allowing its equity, some of which was held privately by managers and venture capital investors, to be publicly traded in stock markets for the first time?

Accepted Answer

The firm is allowing its equity to be publicly traded for the first time which indicates an initial public offering (IPO). Option C is an IPO in which the firm offers its shares to the public for the first time. Options A, B, and D do not fit the description of the situation.

Question 19

Which of the following is the type of financing that includes capital funds borrowed from personal savings, friends and relatives, financial institutions such as commercial banks, or venture capitalists?

Accepted Answer

A) Debt financing refers to capital funds borrowed from personal savings, friends and relatives, and financial institutions such as commercial banks. This type of financing usually involves repayment with interest.

B) Equity financing refers to capital funds raised by selling ownership shares in the business to outside investors, including venture capitalists. In return for their investment, investors receive ownership in the company and a share of future profits.

C) Public financing refers to capital funds raised through the sale of securities to the general public through a public offering, such as an initial public offering (IPO).

D) Capital financing is a broad term that encompasses all types of financing used to raise capital for a business, including equity and debt financing.

Question 20

Which of the following refers to when a single investment bank obtains the exclusive right to originate, underwrite, and distribute the new bonds through a one-on-one negotiation process?

Accepted Answer

This is describing a negotiated sale, where a single investment bank has exclusivity in the issuance of the new bonds and negotiates the terms with the issuer.

Quiz 18: Issuing Capital and the Investment Banking Process