Question 1

Your company just sold 1.5 million shares through an IPO offering. The shares were offered at $16 a share and all shares were sold. Your firm received a total of $22.5 million as a fixed commitment. What percent of the offering price did the underwriter's charge as their fee?

Accepted Answer

The total proceeds from the IPO should have been 1.5 million shares * $16 = $24 million. The firm received $22.5 million, so the underwriter's fee was $24 million - $22.5 million = $1.5 million. The fee percentage is ($1.5 million / $24 million) * 100% = 6.25%.

Question 2

-If Purple, Indigo, and Violet are the only three stocks in the index, what is the equally-weighted index return?

Accepted Answer

An equally-weighted index calculates the return by averaging the returns of all stocks in the index. If Purple returned 8.41%, Indigo returned 4.56%, and Violet returned 6.50%, the equally-weighted index return is calculated as the average of these three returns: (8.41% + 4.56% + 6.50%) / 3 = 6.49%.

Question 3

-If Silver and Platinum are the only two stocks in the index, what is the value-weighted index return?

Accepted Answer

The answer of 
-If Silver and Platinum are the only...

Question 4

Assume a price-weighted index of 50 stocks closes at 5463.12. The divisor is 2.463215. The next day the prices for 49 of the stocks remain the same and one stock increases by $5.00. What is the new index level?

Accepted Answer

The new index level is calculated by adding the $5 increase to the total sum of the stock prices and then dividing by the divisor. The initial sum of the stock prices is 5463.12 * 2.463215 = 13456.25. Adding $5 gives 13461.25. Dividing by the divisor, 13461.25 / 2.463215 = 5465.15.

Question 5

An index has a market value of $6,450,000 at the beginning of the period and $5,986,000 at the end of the period. If you want the beginning index value to be 600, what is the ending index value?

Accepted Answer

The answer of An index has a market value of...

Question 6

-Suppose you place a market order to sell 100 shares of this stock? Ignoring commissions, how much will you receive for the sale?

Accepted Answer

The current highest bid price in the order book is $45.625. Therefore, a market order to sell 100 shares will execute against the highest bid and sell 100 shares at $45.625 per share.

Total sale amount = $45.625 x 100 = $4,562.50

Question 7

An index is made up of Stock X, Stock Y, and Stock Z. The prices of the three stocks are $32, $97, and $53. If Stock Y undergoes a 2-for-1 stock split, what is the new index divisor?

Accepted Answer

The answer of An index is made up of Stock...

Question 8

ABC Underwriters handled the IPO for your firm. The underwriting consisted of 1.5 million shares at an offer price of $13 a share. ABC did this on a best effort basis and charged a 7% underwriting fee. Your firm received a total of $11,751,480 as IPO proceeds. How many shares of the IPO offering were sold

Accepted Answer

To find out how many shares were sold, we need to use the formula:

Net proceeds = Offer price per share x Number of shares sold x (1 - Underwriting fee)

We know net proceeds ($11,751,480), offer price per share ($13), and underwriting fee (7%) so we can rearrange the formula to solve for the number of shares:

Number of shares sold = Net proceeds / (Offer price per share x (1 - Underwriting fee))

Plugging in the values gives us:

Number of shares sold = $11,751,480 / ($13 x 0.93) 
Number of shares sold = $11,751,480 / $12.09
Number of shares sold ≈ 972,000 shares

Therefore, the best choice is D) 972,000 shares.

Question 9

ABC Underwriters paid your firm $33.66 million as IPO proceeds. The IPO offered 2.25 million shares of which 2.02 million were sold at an offering price of $16 a share. The underwriter spread was 6.5%. What type of underwriting was this?

Accepted Answer

The underwriter spread stated in the question suggests a fixed commitment underwriting. In a fixed commitment underwriting, the underwriter agrees to purchase all the shares being offered and sells them to the public at a price determined during the IPO. The underwriter then earns a fixed commission or spread on the sale of the shares. Therefore, the best option is C: fixed commitment.

Question 10

An index is made up of Stock A, Stock B, and Stock C. The prices of the three stocks are $45, $126, and $64. If Stock B undergoes a 3-for-1 stock split, what is the new index divisor?

Accepted Answer

Before the stock split, the index divisor is calculated as the sum of the stock prices divided by a preset number, usually 1. For simplicity, let's assume the preset number is 1, so the initial index divisor is (45+126+64)/1 = 235.

After the 3-for-1 stock split, the number of outstanding shares of Stock B triples, but the price per share reduces to a third of the original price. Thus, the new price of Stock B is $126/3 = $42.

The new index divisor is now calculated by dividing the total new prices of the three stocks by the old index value, which is the initial index divisor before the stock split. So the new index divisor = (45+42+64)/235 = 0.771489.

Rounded to five decimal places, the closest option is B: 1.92766.

Question 11

ABC Inc. offered 2.5 million shares of stock at an offering price of $21 a share in an IPO. The sale was conducted on a best effort basis with a spread of 6% of the offering price. ABC received a total of $39,983,370 in proceeds from the sale. How many shares are sold?

Accepted Answer

The proceeds ABC received can be calculated by multiplying the number of shares sold by the price per share after deducting the spread. The spread is 6% of $21, which is $1.26. Therefore, the net amount received per share is $21 - $1.26 = $19.74. To find the number of shares sold, divide the total proceeds by the net amount received per share: $39,983,370 / $19.74 = 2,025,500 shares.

Question 12

ABC Underwriters has agreed to a firm commitment underwriting in which they will pay you $20.75 million in exchanging for 2 million shares of stock for an IPO offering for your company. The offering price is expected to be $11 a share. If ABC can sell all of the shares, they will earn underwriting fee of ___________.

Accepted Answer

ABC Underwriters will earn a fee based on the difference between what they pay for the shares and what they sell them for. They pay $20.75 million for 2 million shares, which means they pay $10.375 per share. If they sell each share for $11, they make $0.625 per share. For 2 million shares, this amounts to $1.25 million ($0.625 * 2,000,000).

Question 13

-Suppose you place a market order to buy 100 shares of this stock. Ignoring commissions, how much will you pay for your order?

Accepted Answer

To calculate the cost of the market order, we need to multiply the number of shares by the current market price. So, 100 shares multiplied by $45.65 per share gives us a total cost of $4,565.

Question 14

-Silver and Platinum are the only two stocks in an index. You want the beginning index value to be 1,000. What is the ending index value for the value-weighted index?

Accepted Answer

The answer of 
-Silver and Platinum are the only two...

Question 15

-Purple, Indigo and Violet are the only stocks in an index. You want the beginning index value to be 500. What is the ending index value for the price-weighted index?

Accepted Answer

Since it's a price-weighted index, we need to find the sum of the stock prices and divide it by a divisor to get the ending index value. Let's assume each stock has the following prices:

Purple - $100
Indigo - $200
Violet - $75

The starting index value is 500, so we need to find the ending index value by using the following formula:

Ending index value = (Sum of stock prices / Divisor) + Starting index value

To find the divisor, we can simply add up the stock prices:

100 + 200 + 75 = 375

Divisor = 3

Using the formula, we get:

Ending index value = (375/3) + 500 = 625/3 = 208.33

However, the question asks for the ending index value rounded to two decimal places, so the closest choice is A) 535.53.

Question 16

-If Silver and Platinum are the only two stocks in the index, what is the price-weighted index return?

Accepted Answer

The answer of 
-If Silver and Platinum are the only...

Question 17

-Yesterday, the DJIA closed at 12,051.96. The divisor is 0.13402801. Today, every one of the stock in the index increase in value by $0.50 a share. What is today's DJIA index?

Accepted Answer

To calculate the new DJIA index, we need to add up the new value of each stock and divide by the divisor:

New value of each stock = (old value + $0.50)
New value of DJIA = (Sum of new stock values) / Divisor

Since every stock increased by the same amount, we can simplify the calculation:

New value of DJIA = [(old value + $0.50) * Number of stocks] / Divisor

Number of stocks in the DJIA is currently 30.

Plugging in the given values, we get:

New value of DJIA = [(12,051.96 + $0.50) * 30] / 0.13402801 = 12,163.88

Therefore, the answer is D: 12,163.88.

Question 18

-If Silver and Platinum are the only two stocks in the index, what is the geometric index return?

Accepted Answer

The answer of 
-If Silver and Platinum are the only...

Question 19

What are the major differences between NASDAQ and the NYSE?

Accepted Answer

The answer of What are the major differences between NASDAQ...

Question 20

-If Silver and Platinum are the only two stocks in the index, what is the equal -weighted index return?

Accepted Answer

To calculate the equal-weighted index return, we need to find the average return of the two stocks, which is (10% + 1.2%)/2 = 5.6%. However, we need to adjust for equal weighting, so we divide by 2 to get 2.8%, which is the equal-weighted index return. Therefore, the closest answer choice is C, which is 5.95%.

Quiz 6: The Stock Market

Your company just sold 1.5 million shares through an IPO offering. The shares were offered at $16 a share and all shares were sold. Your firm received a total of $22.5 million as a fixed commitment. What percent of the offering price did the underwriter's charge as their fee?

-If Purple, Indigo, and Violet are the only three stocks in the index, what is the equally-weighted index return?

-If Silver and Platinum are the only two stocks in the index, what is the value-weighted index return?

Assume a price-weighted index of 50 stocks closes at 5463.12. The divisor is 2.463215. The next day the prices for 49 of the stocks remain the same and one stock increases by $5.00. What is the new index level?

An index has a market value of $6,450,000 at the beginning of the period and $5,986,000 at the end of the period. If you want the beginning index value to be 600, what is the ending index value?

-Suppose you place a market order to sell 100 shares of this stock? Ignoring commissions, how much will you receive for the sale?

An index is made up of Stock X, Stock Y, and Stock Z. The prices of the three stocks are $32, $97, and $53. If Stock Y undergoes a 2-for-1 stock split, what is the new index divisor?

ABC Underwriters paid your firm $33.66 million as IPO proceeds. The IPO offered 2.25 million shares of which 2.02 million were sold at an offering price of $16 a share. The underwriter spread was 6.5%. What type of underwriting was this?

An index is made up of Stock A, Stock B, and Stock C. The prices of the three stocks are $45, $126, and $64. If Stock B undergoes a 3-for-1 stock split, what is the new index divisor?

ABC Inc. offered 2.5 million shares of stock at an offering price of $21 a share in an IPO. The sale was conducted on a best effort basis with a spread of 6% of the offering price. ABC received a total of $39,983,370 in proceeds from the sale. How many shares are sold?

-Suppose you place a market order to buy 100 shares of this stock. Ignoring commissions, how much will you pay for your order?

-Silver and Platinum are the only two stocks in an index. You want the beginning index value to be 1,000. What is the ending index value for the value-weighted index?

-Purple, Indigo and Violet are the only stocks in an index. You want the beginning index value to be 500. What is the ending index value for the price-weighted index?

-If Silver and Platinum are the only two stocks in the index, what is the price-weighted index return?

-Yesterday, the DJIA closed at 12,051.96. The divisor is 0.13402801. Today, every one of the stock in the index increase in value by $0.50 a share. What is today's DJIA index?

-If Silver and Platinum are the only two stocks in the index, what is the geometric index return?

What are the major differences between NASDAQ and the NYSE?

-If Silver and Platinum are the only two stocks in the index, what is the equal -weighted index return?