Question 1

The reputational capital of investment bankers is based on their roles as intermediaries with more in-depth knowledge of the issuer.Investment bankers maintain their reputation by:

Accepted Answer

Investment bankers maintain their reputation by certifying the issue, monitoring the issuing firm's management and performance, and pricing issues fairly. All of these actions contribute to their crucial role as intermediaries with more extensive knowledge of the issuer, helping to build their reputational capital.

Question 2

During the stock exchange waiting period the potential issuing company can issue a preliminary prospectus which contains:

Accepted Answer

The preliminary prospectus contains information very similar to the final prospectus but does not include the price or the stock exchange approval. This is because during the waiting period, the price and approval may change.

Question 3

An equity issue sold directly to the public is called:

Accepted Answer

A general cash offer is when a company sells its equity to the general public directly, without going through intermediaries such as investment banks. This is also called a public offering or a primary offering. The other options listed are not correct; a rights offer is when existing shareholders are given the right to purchase additional shares at a discounted price, a restricted placement is when shares are sold to a small group of investors, a fully funded sales is not a recognized term, and a standard call issue is not a common term in finance.

Question 4

Under the _____ method,the underwriter buys the securityfor less than the offering price and accepts the risk of not selling the issue,while under the _____ method,the underwriter does not purchase the shares but merely acts as an agent.

Accepted Answer

Under the firm commitment method, the underwriter buys the securities from the issuer and takes on the risk of not being able to sell them to investors. This is in contrast to the best efforts method, where the underwriter does not purchase the securities and simply acts as an agent to try to sell them to investors. The other options listed are not relevant to this concept.

Question 5

The winner's curse is used to describe:

Accepted Answer

The winner's curse refers to the phenomenon where the winning bidder for an IPO has overpaid for the stock due to competition with other bidders who also value the stock highly. This often happens with informed investors who have access to more information about the company and its prospects, leading to a large initial return but ultimately resulting in lower long-term returns.

Question 6

A new public equity issue from a company with equity previously outstanding is called a(n):

Accepted Answer

A seasoned equity issue refers to a new public equity issue from a company with equity previously outstanding. This is different from an initial public offering (IPO) which refers to a company's first ever issuance of public equity. Unseasoned equity issue refers to a new public equity issue from a company with no previous equity outstanding, while private placement refers to the sale of securities to a small group of accredited investors without a public offering. A syndicate refers to a group of investment banks that work together to underwrite and distribute a new issue of securities.

Question 7

A group of investment bankers who pool their efforts to underwrite a security are known as a(n):

Accepted Answer

A group of investment bankers who pool their efforts to underwrite a security are known as a syndicate.

Question 8

Empirical evidence suggests that new equity issues are generally:

Accepted Answer

Empirical evidence suggests that new equity issues are often underpriced, in part, to counteract the winner's curse. This refers to the tendency for the winning bidder in an auction to overpay due to over-optimism or incomplete information. Underpricing the IPO can help reduce the likelihood of this occurring and also increases demand for the offering.

Question 9

An equity issue sold to the firm's existing shareholders is called:

Accepted Answer

A rights offer is an equity issue sold to existing shareholders, giving them the right to purchase new shares at a discounted price. This allows the firm to raise capital while also rewarding loyal shareholders.

Question 10

A firm commitment arrangement with an investment banker occurs when:

Accepted Answer

A firm commitment arrangement with an investment banker occurs when the investment banker buys the security for less than the offering price and accepts the risk of not being able to sell them. This is in contrast to a best efforts arrangement where the investment banker acts as an agent to sell the securities at the best possible price, but does not guarantee the sale.

Question 11

Investment banks perform which of the following services for corporate issuers:

Accepted Answer

Investment banks perform all of the above services for corporate issuers - they help the company formulate the method to issue the securities (such as an initial public offering, or IPO), they price the new securities based on market conditions and investor demand, and they sell the securities to investors on behalf of the issuer.

Question 12

A rights offering is:

Accepted Answer

A rights offering is a way for a company to raise capital by offering existing shareholders the opportunity to purchase additional shares at a discounted price. This is done by the issuance of an option directly to the shareholders, allowing them the right to acquire more stock. Option A describes an issuance of options to the general public, which would not be considered a rights offering. Option C describes the issuance of proxies, which is not related to a rights offering. Option D describes a claim on the company, which is not the same as a rights offering. Option E describes perquisites for management, which is not related to a rights offering.

Question 13

Potential investors learn of the information concerning the firm and its new issue from the:

Accepted Answer

The red herring is a preliminary prospectus that contains information about the firm and its new issue, including the risks involved. It is distributed to potential investors during the pre-marketing period before the actual offering takes place. Investors can use this information to make informed decisions about whether or not to invest in the new issue. The other options listed do not provide information about the firm and its new issue in the same way.

Question 14

Management's first step in any issue of securityto the public is:

Accepted Answer

The first step in issuing securities to the public is to obtain approval from the board of directors, as this is a crucial internal governance step before proceeding with any public offering.

Question 15

In a best efforts offering the investment banker makes their money primarily by:

Accepted Answer

The answer of In a best efforts offering the investment...

Question 16

Companies use tombstone advertisements in the financial press to:

Accepted Answer

Tombstone advertisements are used to announce the availability of a new issue of a corporate stock exchange security. These ads are typically placed in financial newspapers and magazines, and provide information such as the name of the security, the number of shares being offered, the price range, and the names of the underwriters involved in the offering.

Question 17

A registration statement is effective on the 20^th day after filing unless:

Accepted Answer

A registration statement may be subject to review and commentary by the stock exchange, and the issuance of a letter of comment with suggested changes. In this case, the effective date would be postponed until the issuer addresses any concerns and the statement is deemed satisfactory by the exchange. Options A, B, and D are not valid factors in determining the effective date of a registration statement.

Question 18

The first public equity issue made by a company is a(n):

Accepted Answer

The first public equity issue made by a company is called an initial public offering (IPO). This is the first time a company's shares are offered to the general public for purchase. Choices A, C, and D all refer to subsequent offerings made by a company after the IPO has already taken place. Therefore, the correct answer is B, initial public offering.

Question 19

The diagonal listing of investment bankers on tombstone advertisements reflects their ____ relative to the other investment bankers listed below.

Accepted Answer

The diagonal listing of investment bankers on tombstone advertisements reflects their prestige relative to the other investment bankers listed below. Being listed at the top diagonally indicates that the bank played a more significant role in the transaction and is considered to have a higher level of prestige in the industry.

Question 20

Professor Jay Ritter found best-efforts offerings are:

Accepted Answer

According to Professor Jay Ritter, best-efforts offerings are used with small IPO issues.

Quiz 19: Equity Financing

The reputational capital of investment bankers is based on their roles as intermediaries with more in-depth knowledge of the issuer.Investment bankers maintain their reputation by:

During the stock exchange waiting period the potential issuing company can issue a preliminary prospectus which contains:

An equity issue sold directly to the public is called:

Under the _ method,the underwriter buys the securityfor less than the offering price and accepts the risk of not selling the issue,while under the _ method,the underwriter does not purchase the shares but merely acts as an agent.

The winner's curse is used to describe:

A new public equity issue from a company with equity previously outstanding is called a(n) :

A group of investment bankers who pool their efforts to underwrite a security are known as a(n) :

Empirical evidence suggests that new equity issues are generally:

An equity issue sold to the firm's existing shareholders is called:

A firm commitment arrangement with an investment banker occurs when:

Investment banks perform which of the following services for corporate issuers:

A rights offering is:

Potential investors learn of the information concerning the firm and its new issue from the:

Management's first step in any issue of securityto the public is:

In a best efforts offering the investment banker makes their money primarily by:

Companies use tombstone advertisements in the financial press to:

A registration statement is effective on the 20^th day after filing unless:

The first public equity issue made by a company is a(n) :

The diagonal listing of investment bankers on tombstone advertisements reflects their ____ relative to the other investment bankers listed below.

Professor Jay Ritter found best-efforts offerings are:

Quiz 19: Equity Financing

The reputational capital of investment bankers is based on their roles as intermediaries with more in-depth knowledge of the issuer.Investment bankers maintain their reputation by:

During the stock exchange waiting period the potential issuing company can issue a preliminary prospectus which contains:

An equity issue sold directly to the public is called:

Under the _____ method,the underwriter buys the securityfor less than the offering price and accepts the risk of not selling the issue,while under the _____ method,the underwriter does not purchase the shares but merely acts as an agent.

The winner's curse is used to describe:

A new public equity issue from a company with equity previously outstanding is called a(n) :

A group of investment bankers who pool their efforts to underwrite a security are known as a(n) :

Empirical evidence suggests that new equity issues are generally:

An equity issue sold to the firm's existing shareholders is called:

A firm commitment arrangement with an investment banker occurs when:

Investment banks perform which of the following services for corporate issuers:

A rights offering is:

Potential investors learn of the information concerning the firm and its new issue from the:

Management's first step in any issue of securityto the public is:

In a best efforts offering the investment banker makes their money primarily by:

Companies use tombstone advertisements in the financial press to:

A registration statement is effective on the 20th day after filing unless:

The first public equity issue made by a company is a(n) :

The diagonal listing of investment bankers on tombstone advertisements reflects their ____ relative to the other investment bankers listed below.

Professor Jay Ritter found best-efforts offerings are:

Under the _ method,the underwriter buys the securityfor less than the offering price and accepts the risk of not selling the issue,while under the _ method,the underwriter does not purchase the shares but merely acts as an agent.

A registration statement is effective on the 20^th day after filing unless: