Question 1

Which of the following is false with respect to initial public offerings (IPOs)?

Accepted Answer

This statement is false. There is no specific time frame during which owners of firms engaging in IPOs must retain their shares. However, lock-up periods may be negotiated by underwriters to prevent insiders from flooding the market with shares immediately after the IPO.

Question 2

If managers believe that their firm's stock price is weak because it is undervalued by the market, they may consider repurchasing a portion of the shares that are outstanding.

Accepted Answer

This is a common strategy used by companies to boost their stock prices by reducing the number of shares available in the market, which in turn increases the earnings per share and overall value of the remaining shares.

Question 3

Firms are more willing to issue new stock in a secondary stock offering when the market price of their outstanding shares is relatively

Accepted Answer

Firms are more willing to issue new stock in a secondary offering when the market price of their outstanding shares is high because this means that investors see value in the company and are willing to buy more of its stock. This can result in a lower cost of capital for the firm, making it a more attractive option to issue new stock. When the market price of the outstanding shares is low, the firm may not want to issue new stock as it may indicate a lack of investor confidence in the company.

Question 4

Assume a firm that is valued at $800 million with 6 million shares of stock outstanding. This firm's stock should have a price of $____ per share.

Accepted Answer

The stock price per share is calculated by dividing the firm's total value by the number of shares outstanding: $800 million / 6 million shares = $133.33 per share.

Question 5

The annual dividend on Grozky, Inc. stock is $5 per share and the stock's prevailing price is $93.13 per share. Thus, the stock's dividend yield is ____ percent.

Accepted Answer

The dividend yield is calculated by dividing the annual dividend by the stock's price and then multiplying by 100 to get a percentage. So, ($5 / $93.13) * 100 = 5.37%.

Question 6

After an IPO, firms commonly list their shares on a private stock exchange.

Accepted Answer

After an IPO, firms commonly list their shares on a public stock exchange like NYSE or NASDAQ, not a private stock exchange.

Question 7

Which of the following is not true with respect to venture capital (VC) funds?

Accepted Answer

One common exit strategy for VC funds is not to sell its equity stake to the public before the business engages in a public stock offering. Rather, it is to sell the business to another company or private equity firm.

Question 8

The owners of common stock are permitted to vote on the

Accepted Answer

Common stock owners are generally given voting rights to elect the board of directors, authorize new share issuance, approve amendments to the corporate charter, and adopt bylaws. Therefore, all of the above options are correct.

Question 9

International exchange-traded funds (ETFs) represent international indexes that reflect composites of stocks for particular countries; shares of the index can be purchased or sold, thereby allowing investors to invest directly in a stock index representing any one of several countries.

Accepted Answer

This statement is true. International exchange-traded funds (ETFs) do represent international indexes and allow investors to invest directly in a stock index representing any one of several countries.

Question 10

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

Accepted Answer

Antitakeover amendments are not a form of shareholder activism. These amendments are implemented by the management of a company to protect themselves from potential takeovers and do not involve shareholder input or action. Proxy contests, shareholder lawsuits, and other actions taken by shareholders to influence company decisions or management are forms of shareholder activism.

Question 11

Which of the following is not a provision specified in the Sarbanes-Oxley Act?

Accepted Answer

The Sarbanes-Oxley Act actually requires that a majority of the members of the audit committee be independent outside board members, not inside board members.

Question 12

A firm whose stock price has risen:

Accepted Answer

A firm whose stock price has risen will have more valuable stock to use as currency in an acquisition. This gives the firm an incentive to acquire the shares of a target firm using its own stock as a form of payment.

Question 13

There is strong evidence that IPOs of firms perform ____ on average over a period of a year or longer.

Accepted Answer

Research has consistently shown that IPOs tend to underperform in the long run, with many IPOs experiencing significant declines in value after their initial pop.

Question 14

Which of the following is not true with respect to preferred stock?

Accepted Answer

Preferred shareholders do not have the power to force the firm into bankruptcy if dividends are not paid. In fact, if the firm does not have sufficient earnings to pay preferred dividends, the dividends may be skipped without any legal ramifications.

Question 15

Managers protected by golden parachutes may be more willing to make decisions that increase the company's earnings in the long run, even though the decisions adversely affect the stock price in the short run.

Accepted Answer

Managers with golden parachutes are protected from losing their jobs or compensation in the event of a company takeover or merger. This protection may allow them to prioritize making decisions that benefit the company in the long run, rather than focusing solely on short-term gains that would benefit the stock price but could harm the company's overall performance.

Question 16

To discourage flipping, some securities firms make ____ shares of future IPOs available to institutional investors that retain shares for a ____ period of time.

Accepted Answer

The answer of To discourage flipping, some securities firms make...

Question 17

"Pink sheets" are traded on the

Accepted Answer

Pink sheets are stocks that are not listed on a major exchange, such as the NYSE, AMEX, or Nasdaq. Instead, they are traded on the over-the-counter market, which is typically accessed through electronic quotation systems such as the Pink Sheets.

Question 18

Which of the following is not a barrier to corporate control?

Accepted Answer

Proxy contests are a method used by shareholders to influence corporate control, not a barrier.

Question 19

Possible disadvantages of private stock exchanges to investors include:

Accepted Answer

Private stock exchanges may have limitations such as only allowing large institutional investors to purchase shares and may have less required disclosures compared to publicly traded companies. Additionally, trading volume may also be limited on private stock exchanges. These factors may pose disadvantages to investors.

Question 20

Most individual investors attend road shows of firms that are about to go public before they purchase shares at the time of an IPO.

Accepted Answer

Most individual investors do not have access to IPO road shows, which are typically reserved for institutional investors, analysts, and high-net-worth individuals invited by the underwriting firms.

Quiz 10: Stock Offerings and Investor Monitoring

Which of the following is false with respect to initial public offerings (IPOs) ?