Deck 10: Equity Markets

Question 1

Shelf registration permits a corporation to preregister several types of security issues and sell them at any time within the subsequent two years.

Answer 1

True

Question 2

The underwriter's spread is typically inversely related to the size of the primary offering.

Answer 2

True

Question 3

High frequency trading is designed to help market trades by individual investors.

Answer 3

False

Question 4

Preferred stockholders have the same voting rights as common shareholders.

Question 5

Convertible preferred stock can be exchanged into common stock at a predetermined ratio.

Question 6

Primary capital market securities provide marketability and possibilities for investors to alter the riskiness of their portfolios.

Question 7

The NASDAQ is a stock exchange with a physical location

Question 8

The Dow Jones Industrial Average is a price-weighted index.

Question 9

Preferred stocks have more variable prices than common stock.

Question 10

Common and preferred stock dividends are paid out of pre-tax earnings.

Question 11

Among financial institutions, mutual funds are the largest holders of corporate equity securities.

Question 12

The most common method of selling stock to the public is through a rights offering.

Question 13

Limited liability of stockholders protects them from losses on their stock portfolio.

Question 14

A market with breadth has a large number of diverse investors.

Question 15

The secondary market for capital market securities is important because it provides funds directly to deficit spending units.

Question 16

A wide spread between the bid and ask quotes of a security dealer represents high costs to trade.

Question 17

At the NYSE, limit orders are usually entered into the specialist's limit order book.

Question 18

The New York Stock Exchange is an example of a secondary market.

Question 19

A publicly traded company issuing additional shares of common stock does it through an IPO.

Question 20

Common stockholders enjoy limited liability, which means any losses in stock value are covered by the company.

Question 21

Explain what shelf registration is and how it can help companies to reduce their costs.

Question 22

Describe how limit orders whose prices are not close to current market prices are handled at NYSE.

Question 23

What are the pros and cons of high frequency trading (HFT) and dark pools? Do they improve market efficiency? Explain.

Question 24

Equity capital can be raised through the money market and the NYSE bond market.

Question 25

What are the advantages of investing in American Depository Receipts (ADRs) compared to direct investment into foreign equities?

Question 26

Preferred stockholders have a claim junior to common stock but senior to bondholders.

Question 27

Why do you think stock prices increased in late 2016, particularly after the election ofDonald Trump?

Question 28

A proxy is an absentee ballot that allows a representative to vote on behalf of thestockholder.

Question 29

List and briefly describe the four types of secondary equity markets.