Question 1

Bondholders are more likely to receive a financial return than shareholders.

Accepted Answer

Bondholders are typically entitled to a fixed rate of interest or coupon payments, which they receive regardless of whether the company is profitable or not. Shareholders, on the other hand, only receive a financial return through dividends or capital gains if the company is profitable and the shares increase in value. Therefore, bondholders are more likely to receive a financial return than shareholders.

Question 2

Financial institutions not federally regulated are governed by legislation in the province in which they are registered.

Accepted Answer

Financial institutions not federally regulated such as credit unions, trust companies, and certain cooperatives are governed by provincial legislation in the province in which they are registered.

Question 3

Banks are the most common depository institutions.

Accepted Answer

Banks are the most common depository institutions, offering a variety of deposit accounts such as checking, savings, and certificates of deposit. Other examples of depository institutions include credit unions and savings and loan associations, but they are less common overall.

Question 4

Without financial markets, companies would find it difficult to obtain the financial resources needed to meet payrolls, invest in new facilities, develop new products, and compete effectively in global markets.

Accepted Answer

The answer of Without financial markets, companies would find it...

Question 5

Three key types of securities issued by corporations to meet their long-term financial needs are common stock, preferred stock, and bonds.

Accepted Answer

This statement is true. Common stock represents ownership in the corporation, preferred stock represents a hybrid of debt and equity, and bonds represent debt that must be repaid with interest.

Question 6

Common stock is the basic form of ownership in a corporation.

Accepted Answer

Common stock represents a share in the ownership of a corporation and is the most basic form of ownership.

Question 7

Bonds are shares of ownership in a corporation.

Accepted Answer

Bonds are actually debt securities where the investor lends money to the corporation or government, rather than owning a share of ownership.

Question 8

A capital gain is an additional payment the company makes to the holder of one of its securities over and above the normal dividend or interest payment.

Accepted Answer

A capital gain refers to the profit made from selling a security at a higher price than its purchase price, and it is not a payment made by the company to the security holder.

Question 9

When a company issues preferred stock with a cumulative feature, any time it skips a preferred dividend in one quarter, the amount it owes the next quarter is equal to the dividend for that quarter plus the dividend it skipped in the previous quarter.

Accepted Answer

This is correct, as preferred stock with a cumulative feature means that any missed dividends accumulate and must be paid before any common stock dividends can be paid. Therefore, if a company skips a preferred dividend in one quarter, it will owe the dividend for that quarter plus any missed dividends from previous quarters.

Question 10

Preferred shareholders are guaranteed to receive a dividend every quarter.

Accepted Answer

Preferred shareholders may receive a dividend every quarter, but it is not guaranteed. The company's financial performance and board of directors' decision determine the amount and frequency of dividend payments to preferred shareholders.

Question 11

A bond's maturity date is the date when a bond will come due and the issuing company must pay the principal amount owed to the bondholder.

Accepted Answer

The statement is true. The maturity date is the date when a bond is due and the principal must be paid to the bondholder.

Question 12

Self-regulatory organizations are non-governmental organizations operating in the securities industry that develop and enforce rules and standards governing the behaviour of their members.

Accepted Answer

Self-regulatory organizations (SROs) such as FINRA and the Securities Industry and Financial Markets Association (SIFMA) are indeed non-governmental organizations that create and enforce rules and standards for their members in the securities industry.

Question 13

An investment bank is a financial intermediary that specializes in helping firms raise financial capital in primary markets.

Accepted Answer

An investment bank is a financial institution that provides a range of financial services, but one of their main functions is to assist companies in raising capital through the sale of securities in the primary market. This is often done through initial public offerings (IPOs) or the issuance of new debt or equity instruments.

Question 14

When the market price of a bond is above its par value, it sells at a premium; if it's below its par value, it is selling at a discount.

Accepted Answer

This statement is true. If a bond is trading above its par value, it is selling at a premium because investors are willing to pay more than the face value of the bond due to its attractive features such as a higher coupon rate or a lower yield. Conversely, if a bond is trading below its par value, it is selling at a discount because investors are unwilling to pay the face value of the bond due to unattractive features such as a lower coupon rate or a higher yield.

Question 15

Securities markets are where firms raise funds needed primarily to meet their short-term financial needs.

Accepted Answer

Securities markets are primarily used by firms to raise long-term capital to finance their growth and investment activities, while short-term financial needs are typically met through sources such as bank loans or commercial paper.

Question 16

The par value of a bond is the value of that bond at its maturity. It represents what the firm must pay the bondholder when the bond matures.

Accepted Answer

This is correct. The par value is also known as the face value or nominal value. It is typically set at $1,000 for corporate bonds and represents the amount the bondholder will receive at the bond's maturity.

Question 17

Canada is moving toward one regulatory body across the country. The passport system allows a company wanting to enter the securities market to deal with only one provincial securities commission.

Accepted Answer

This statement is true. The Canadian Securities Administrators (CSA) has been working towards a single regulatory body for securities across the country, and the passport system allows for easier access to multiple provinces by dealing with only one provincial securities commission.

Question 18

Depository institutions are financial intermediaries that obtain funds from individuals, businesses, and other institutions, and then lend those funds to borrowers.

Accepted Answer

This is a true statement. Depository institutions include banks, credit unions, and savings and loans associations.

Question 19

A bond is a long-term debt instrument issued by a corporation or government entity.

Accepted Answer

This statement is true. Bonds are indeed long-term debt instruments issued by corporations or government entities.

Question 20

Credit unions and caisse populaires are much larger players in financial markets than banks.

Accepted Answer

This statement is false. Banks are generally much larger players in financial markets than credit unions and caisse populaires.

Quiz 9: Financial Markets: Allocating Financial Resources