Question 1

Ethanol Lawn Mowers issued 500,000 shares to the public. The gross proceeds were $31,250,000 and the net proceeds were $30 million. Merrel Bench was the lead underwriter and deal negotiator,but 10 other investment bankers (one of which was Golden Sax)were also used to put up capital and help sell the issue. Which of the following statements is/are correct?
I. The public paid $62.50 a share.
II. Golden Sax was the originating house.
III. The spread per share was $3.50.
IV. Merrel Bench is the sole book running manager.
V. This offer was a syndicated deal.

Accepted Answer

I. The gross proceeds of $31,250,000 divided by 500,000 shares equals $62.50 per share, which is what the public paid. 
II. There is no information given to support this statement; it is not mentioned who the originating house was. 
III. The spread is the difference between the public offering price ($62.50) and the net proceeds per share. $62.50 - $30,000,000 / 500,000 shares = $3.50 spread per share. 
IV. Merrel Bench is mentioned as the lead underwriter, but not as the sole book running manager. Therefore, this statement is incorrect. 
V. The involvement of 11 investment bankers, including the lead underwriter, indicates that this was a syndicated deal. Therefore, this statement is correct.

Question 2

Data show that since 1942,only 8 of the 14 recessions predicted by the stock market actually occurred. Although stocks are a leading economic indicator,what are some reasons why a stock price decline might not indicate an upcoming recession?

Accepted Answer

The answer of Data show that since 1942,only 8 of...

Question 3

The stamp on a prospectus accompanying a new issue that indicates the issue has not yet been approved for sale by the SEC is called the

Accepted Answer

The stamp on a prospectus accompanying a new issue that indicates the issue has not yet been approved for sale by the SEC is called the red herring. This warning allows potential investors to be aware that the information presented in the prospectus may change or may not be accurate.

Question 4

As a small (minority)stockholder would you prefer to have cumulative voting or straight voting shares? As a majority shareholder?

Accepted Answer

The answer of As a small (minority)stockholder would you prefer...

Question 5

Suppose you own 500,000 shares of common stock in a firm with 40 million total shares outstanding. The firm announces a plan to sell an additional 5 million shares through a rights offering. The market value of the stock is $32.5 before the rights offering and the new shares are being offered to existing shareholders at a $2.50 discount. If you exercise your preemptive rights,how many of the new shares can you purchase?

Accepted Answer

First, we need to calculate the total number of shares after the rights offering: 
40,000,000 + 5,000,000 = 45,000,000 total shares
Next, we use the proportion method to determine how many new shares we can purchase:
500,000 / 40,000,000 = x / 5,000,000
x = 62,500
Therefore, the answer is (C) 62,500 shares.

Question 6

In a ________ the firm preregisters with the SEC any securities it wishes to sell over the next two years.

Accepted Answer

A shelf registration allows a firm to preregister with the SEC any securities it wishes to sell over the next two years. This allows the firm to quickly and easily sell securities when market conditions are favorable without going through the lengthy process of registering each individual offering.

Question 7

Which of the following ADRs is considered the most risky type of ADR?

Accepted Answer

Level 1 ADRs are considered the most risky because they have the least regulatory requirements. They do not have to comply with the U.S. GAAP (Generally Accepted Accounting Principles) and are not required to file their financial statements with the SEC (Securities and Exchange Commission). This lack of regulatory oversight can make it harder for investors to find reliable financial information, increasing the risk.

Question 8

Computerized markets that automatically match orders between buyers and sellers and are used primarily by institutions traders are called

Accepted Answer

ECNs (Electronic Communication Networks) are computerized markets that automatically match orders between buyers and sellers. They are mainly used by institutional traders for trading large blocks of stocks. OTC bulletin boards, SPIDRS, index markets, and specialists are different types of trading systems or platforms.

Question 9

A publicly traded company gave its existing shareholders the opportunity to purchase from the new stocks that it will issue. The existing shareholders can purchase 3 new shares at a price of $10 per share for every 8 shares held. This is an example of:

Accepted Answer

This is a rights offering, as existing shareholders are given the right to purchase additional shares at a discounted price. Private placement involves the sale of securities to a small group of private investors, shelf registration allows a company to register securities for sale without actually issuing them, an initial public offering involves the first time a company sells shares to the public, and a syndicate offering involves a group of underwriters working together to sell securities.

Question 10

The electronic-based market for less actively traded U.S. securities is the

Accepted Answer

The OTC Bulletin Board (OTCBB) is an electronic quotation system that displays real-time quotes, last-sale prices, and volume information for many over-the-counter (OTC) equity securities that are not listed on a national securities exchange, such as the NYSE or NASDAQ. This market is often used for less actively traded securities. The other options listed are not specific to less actively traded securities.

Question 11

What are the advantages and disadvantages of foreign investing? How does an ADR help overcome the disadvantages?

Accepted Answer

The answer of What are the advantages and disadvantages of...

Question 12

Suppose a firm has 10 million shares of common stock outstanding and seven candidates are up for election to three seats on the board of directors. If the firm uses cumulative voting to elect its board,what is the minimum number of votes needed to ensure election to the board?

Accepted Answer

In cumulative voting, each shareholder gets to distribute their total number of votes across the candidates as they choose. To ensure election to the board, a candidate would need to receive at least 1/4 of the total number of votes (since there are three seats to be filled).

10 million shares x 1 vote per share = 10 million total votes
10 million total votes ÷ 4 = 2.5 million votes needed to ensure election

However, because of the cumulative voting system, a candidate can receive all of a shareholder's votes, even if they have fewer votes than the threshold calculated above. So, the minimum number of votes needed to ensure election would be if all shareholders who vote give all of their votes to one candidate for each of the three seats:

3 seats x 2.5 million votes per seat = 7.5 million votes needed to ensure election

Therefore, the best choice is D) 7,500,001.

Question 13

Answer the following questions concerning the given partial stock quote:
  
A) What was the dividend yield?
B) What was the most recent four quarters of earnings per share?
C) Valued at the closing price,what was the total dollar volume of shares traded?
D) What was the stock price at the beginning of the year?

Accepted Answer

The answer of Answer the following questions concerning the given...

Question 14

According to the strong form of efficient market hypothesis:

Accepted Answer

The strong form of efficient market hypothesis states that all information, including private information, is already reflected in the stock prices and therefore, it is impossible to earn abnormally high returns using any kind of information.

Question 15

What are weak form,semi-strong form,and strong form efficiency? Does one form of efficiency imply another?

Accepted Answer

The answer of What are weak form,semi-strong form,and strong form...

Question 16

Suppose that over the last 10 to 15 years significantly large numbers of investors have been able to earn abnormal returns from using the firm's publicly available financial information to forecast growth in earnings and dividends. This would be evidence that the markets are not
I. weak form efficient.
II. semi-strong form efficient.
III. strong form efficient.

Accepted Answer

The ability of investors to earn abnormal returns using publicly available financial information suggests that the market is not semi-strong form efficient, as this form of efficiency posits that all public information is already reflected in stock prices. It also implies that the market is not weak form efficient, which states that past trading information is reflected in stock prices. However, it does not necessarily imply anything about strong form efficiency, which deals with all information, both public and private, being reflected in stock prices.

Question 17

A firm is using cumulative voting and four director spots are up for election. There are 3.6 million shares outstanding. How many shares must a minority owner own or control to ensure that he or she can gain control of one seat on the board of directors?

Accepted Answer

In cumulative voting, a minority shareholder can secure a board seat by owning more than 1/(number of seats + 1) of the shares. For 4 seats, this is 1/(4+1) = 1/5. Therefore, 3.6 million shares * 1/5 = 720,000.1 shares are needed, so owning 720,001 shares ensures control of one seat.

Question 18

The NYSE specialists are charged with
I. trading for their own account.
II. ensuring public limit orders are executed.
III. facilitating processing public market orders.

Accepted Answer

NYSE specialists are responsible for trading for their own account, ensuring public limit orders are executed, and facilitating the processing of public market orders. They play a crucial role in maintaining fair and orderly markets.

Question 19

The age group that holds the most stock as of April 2016 is the ________ group.

Accepted Answer

According to a report by the Federal Reserve, as of April 2016, the age group of 55 and older held the most stock.

Question 20

Today,Stock A is worth $20 and has 1,000 shares outstanding. Stock B costs $30 and has 500 shares outstanding. Stock C is priced at $50 per share and has 1,200 shares outstanding. If,tomorrow,Stock A is priced at $22,Stock B at $35,and Stock C is worth $48,what would the value-weighted index amount equal? (The index has a base period value of 100.)

Accepted Answer

The answer of Today,Stock A is worth $20 and has...

Quiz 8: Stock Markets