Question 1

In the aftermarket trading for the venture's securities,an order that is to be executed as soon as possible at the prevailing market price is known as a:

Accepted Answer

In the given scenario, an order that is to be executed as soon as possible at the prevailing market price is called a market order. The other options, put order, limit order, and stop order, all have specific conditions and criteria for execution and are not appropriate for this situation.

Question 2

A venture is expected to have an exit value of $10,000,000 two years from now.If venture investors invest $2,000,000 now,and expect a 20% compounded rate of return on their investment,what portion of the exit value would they need?

Accepted Answer

Using the compound interest formula:

FV = PV x (1 + r)^n

where FV is the future value, PV is the present value, r is the interest rate, and n is the number of periods.

We can plug in the given values:

$10,000,000 = $2,000,000 x (1 + 0.20)^2

Solving for the future value:

$10,000,000 = $2,000,000 x 1.44

$10,000,000 / $2,000,000 = 5

Taking the fifth root of both sides:

(10,000,000 / 2,000,000)^(1/5) = 1.288

So the investors would need a portion of:

1.288 - 1 = 0.288, or 28.8%

Question 3

An agreement with an investment bank that involves the purchase and distribution of new securities is known as:

Accepted Answer

Firm commitment underwriting is a type of agreement with an investment bank where the bank buys the entire issue of new securities from the issuing company and then resells them to investors. This means that the bank is taking on the risk of selling the securities at a profit, and guarantees the issuing company a certain amount of proceeds from the sale. This is different from best efforts underwriting, where the bank only agrees to use its best efforts to sell the securities, but does not guarantee a certain amount of proceeds.

Question 4

If venture investors invest $1,000,000 now,will receive 25% of the exit value,and expect a 20% compounded rate of return on their investment,what is the approximate expected exit value at the end of five years?

Accepted Answer

The answer of If venture investors invest $1,000,000 now,will receive...

Question 5

The investment banks process of ascertaining,to the extent possible,an issuing firm's financial condition and investment intent is known as:

Accepted Answer

The process of ascertaining an issuing firm's financial condition and investment intent is known as due diligence. This is a key part of the investment banks' role in underwriting and offering securities to the public. It involves reviewing the issuing firm's financial statements, business plan, and other relevant information to help ensure that investors have accurate and complete information before making their investment decisions. The other choices listed are not directly related to this process.

Question 6

The arrangement where an underwriter has the option of selling additional shares when the issue is heavily oversubscribed is known as

Accepted Answer

A green shoe option allows the underwriter to issue more shares than originally planned if there is high demand for the initial offering. This can support the underwriter's efforts to stabilize the stock price and can potentially increase the proceeds raised by the offering.

Question 7

Based on the following information,estimate the percentage appreciation on stock bought by the founders:founders' purchase price $1.00;venture investors' purchase price $2.00;current stock price $10.00;founders holding period = 5 years;venture investors holding period = 3 years.

Accepted Answer

The answer of Based on the following information,estimate the percentage...

Question 8

In the investment banking process,which of the following is a duty of the investment bank?

Accepted Answer

The primary duty of an investment bank is to find buyers for a firm's securities through a process known as underwriting. They help the firm to price their securities and market them to potential investors. Investing banks do not typically provide banking services such as checking accounts to firms nor are they targeted investors themselves. Therefore, choices A, B, D, and E are incorrect.

Question 9

Assume that a venture is expected to have an EBITDA of $1,500,000 at the end of five years from now.If the venture's value is expected to be $12,000,000,what "valuation multiple" was being assumed?

Accepted Answer

To find the valuation multiple, we divide the expected value ($12,000,000) by the expected EBITDA ($1,500,000). 
Valuation Multiple = Value / EBITDA = $12,000,000 / $1,500,000 = 8 times. Therefore, the correct answer is (C) 8 times.

Question 10

In the aftermarket trading for the venture's securities,an order that converts to a market order once a certain price is achieved is known as a:

Accepted Answer

A stop order becomes a market order once a certain price is achieved. A put order is an option contract to sell securities at a specified price, a market order is an order to buy or sell securities immediately at the best available price, and a limit order is an order to buy or sell securities at a specified price or better.

Question 11

Based on the following information,estimate the percentage appreciation on stock bought by the venture investors:founders' purchase price $.50;venture investors' purchase price $2.00;current stock price $10.00;founders holding period = 5 years;venture investors holding period = 3 years.

Accepted Answer

The answer of Based on the following information,estimate the percentage...

Question 12

The sale of used shares is known as:

Accepted Answer

The sale of used shares is known as a secondary offering. A primary offering is the initial sale of shares by a company to the public, an initial public offering (IPO) is the first time a company offers its shares to the public, and a shelf offering allows a company to register new shares for future sale without having to complete the full registration process each time.

Question 13

A venture is expected to have an exit value of $10,000,000 five years from now.If venture investors invest $1,000,000 now,and expect a 20% compounded rate of return on their investment,what portion of the exit value would they need?

Accepted Answer

To calculate the portion of the exit value that the venture investors would need, we can use the formula:
Investment amount = Exit value / (1+rate of return)^time period
Plugging in the given values, we get:
$1,000,000 = $10,000,000 / (1+0.2)^5
Solving for the exit value portion:
Exit value portion = $1,000,000 * (1+0.2)^5 / $10,000,000
= 0.249
= 24.9%
Therefore, the correct answer is C.

Question 14

Which of the following describes when a syndicate's offering price is less than the market price immediately following the offering?

Accepted Answer

IPO underpricing is when the offering price of a syndicate is set lower than the expected market price. This is done to ensure a successful offering and attract investors. If the market price immediately following the offering is higher than the offering price, it indicates that the offering was underpriced.

Question 15

The NYSE participates in:

Accepted Answer

The answer of The NYSE participates in:
...

Question 16

If venture investors invest $1,000,000 now,will receive 50% of the exit value,and expect a 20% compounded rate of return on their investment,what will be the amount of the exit value at the end of two years?

Accepted Answer

The answer of If venture investors invest $1,000,000 now,will receive...

Question 17

If venture investors invest $6,750,000 now,will receive 32% of the exit value,and expect a 22% compounded rate of return on their investment,what is the exit value at the end of seven years?

Accepted Answer

Using the formula for compound interest: 
FV = PV * (1 + r)^n, where
PV = Present Value = $6,750,000
r = expected rate of return = 22%
n = number of years = 7
FV = Exit Value

FV = $6,750,000 * (1 + 0.22)^7 = $84,854,057

Then, 32% of the exit value is:

Exit Value * 32% = $84,854,057 * 0.32 = $27,153,298

Therefore, the answer is D: $84,854,057 exit value at the end of seven years.

Question 18

The difference between what the investment bank gets from selling securities to public investors and what they pay to the issuing firm is known as:

Accepted Answer

The difference between what investment bank gets from selling securities to public investors and what they pay to the issuing firm is known as the underwriting spread. Therefore, option E, underwriting spread, is the correct answer. Option A, IPO underpricing, refers to the situation where the IPO price is set lower than the market price, after it starts trading in the secondary market. Option B, due diligence, refers to the investigation or research done by the underwriter to ensure that all material information is disclosed in the prospectus. Options C and D, firm commitment and best efforts, refer to the two types of underwriting agreements between the issuing firm and the investment bank.

Question 19

The sale of new securities is known as:

Accepted Answer

The sale of new securities refers to the process where a company raises fresh capital by issuing new securities. This is known as a primary offering. Secondary offering, on the other hand, is the sale of existing securities by the company's existing shareholders to the general public. Initial Public Offering (IPO) refers to the first time a company offers its securities for sale to the public. A shelf offering is a type of offering where a company registers a new issue but does not sell the entire offering all at once, instead chooses to sell portions of it over a period of time.

Question 20

A type of agreement with an investment bank employing only marketing and distribution efforts without the actual transfer of securities ownership to the investment banking syndicate is called:

Accepted Answer

A type of agreement where the investment bank only employs marketing and distribution efforts without actually taking ownership of securities is called a best efforts agreement. In this agreement, the investment bank will only receive compensation for the securities that are successfully sold, unlike a firm commitment agreement where the investment bank takes ownership of the securities and assumes the risk if they are not sold. The other answer choices are not relevant to this type of agreement.

Quiz 14: Harvesting the Business Venture Investment