Question 1

The sale of used shares is known as:

Accepted Answer

The sale of used shares, or previously issued shares, is known as a secondary offering. This is different from a primary offering, which involves the sale of new shares by a company, and an initial public offering (IPO), which is the first time a company offers shares to the public. A shelf offering refers to a company registering securities with the Securities and Exchange Commission in advance, but not actually offering them for sale until a later date.

Question 2

In an outright sale of a venture,the venture can be sold to:

Accepted Answer

The answer of In an outright sale of a venture,the...

Question 3

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 the investment bank gets from selling securities to public investors and what they pay to the issuing firm is known as underwriting spread.

Question 4

The sale of new securities is known as:

Accepted Answer

A primary offering refers to the sale of new securities by a company to raise capital, often through an investment bank or underwriter. In contrast, a secondary offering involves the sale of existing securities by existing shareholders. An initial public offering (IPO) refers specifically to a company's first sale of stock to the public, which is a type of primary offering. A shelf offering refers to a type of primary offering where a company files a registration statement with the Securities and Exchange Commission (SEC) to allow for future sales of securities over a period of time.

Question 5

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

Using the compound interest formula, we can find that the $1,000,000 investment would need to grow to $3,247,544.88 after five years to achieve a 20% compounded rate of return. Then, we can calculate what portion of the $10,000,000 exit value is needed to achieve that amount:
$3,247,544.88 / $10,000,000 = 0.3248, or 32.48%
However, remember that the question is asking for the portion that the investors need, not the portion that they will receive. So, we subtract that percentage from 100% to get the answer:
100% - 32.48% = 67.52%
Therefore, the investors would need 67.52% of the exit value, or 24.9% (rounded to the nearest tenth), which is option C.

Question 6

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 formula for compound interest, we can calculate the future value of the investment:
$2,000,000 * (1 + 0.20)^2 = $2,880,000
To determine the portion of the exit value needed to provide this return, we divide the future value of the investment by the exit value:
$2,880,000 / $10,000,000 = 0.288 = 28.8%
Therefore, the venture investors would need 28.8% of the exit value to provide a 20% compounded rate of return on their $2,000,000 investment. The correct answer is choice D.

Question 7

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

The type of agreement described is called a "best efforts" underwriting agreement, where the investment bank acts as a broker and only agrees to use its best efforts to sell the securities on behalf of the issuer, without actually taking ownership of the securities. The other options listed are not relevant to this type of agreement.

Question 8

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 9

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 10

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 calculate the valuation multiple, we need to divide the expected value ($12,000,000) by the expected EBITDA ($1,500,000) which gives us 8. Therefore, the assumed valuation multiple is 8 times.

Question 11

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

Accepted Answer

The duty of the investment bank in the investment banking process is to find buyers for a firm's securities. Option A is incorrect because investment bank does not purchase the securities. Option B is incorrect because investment banks provide corporate banking services rather than checking accounts. Option E is incorrect because option A and B are inaccurate.

Question 12

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 13

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 (or overallotment) is an arrangement in which the underwriter has the option to sell additional shares when the issue is heavily oversubscribed. This helps to stabilize the price of the shares and ensures that the underwriter can meet demand for the stock.

Question 14

Shares registered with the Securities and Exchange Commission and state securities regulators and sold to the public are known as:

Accepted Answer

The answer of Shares registered with the Securities and Exchange...

Question 15

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

Accepted Answer

An agreement that involves the purchase and distribution of new securities with a commitment to sell the entire issue is known as a firm commitment underwriting. This type of underwriting provides the issuer with more certainty of raising the desired amount of capital, as the underwriter takes on the risk of purchasing the securities and reselling them to investors.

Question 16

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 occurs when a syndicate's offering price is set lower than the market price immediately following the offering. This is done to entice investors and ensure a successful IPO.

Question 17

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 18

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 described here is clearly the due diligence process, whereby an investment bank performs an analysis of the issuing firm's financial condition and investment intent to determine the risk associated with underwriting the IPO. This process helps the investment bank to price the IPO accurately and determine the appropriate level of underwriting risk to take on.

Question 19

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