Question 1

The Golden Nickel just arranged a 2-year direct business loan.Which one of the following terms matches this loan arrangement?

Accepted Answer

A term loan is a direct loan from a bank or financial institution with a set repayment schedule and a fixed or variable interest rate over a specific term. In this case, The Golden Nickel arranged a 2-year loan, which is a specific term loan.

Question 2

Which one of the following is an underwriting of securities where the final offer price is determined by investor bids?

Accepted Answer

A Dutch auction is an underwriting process in which investors submit bids for securities, and the price is set based on the highest bid that will allow all the securities to be sold. This method is often used in initial public offerings and is sometimes called an "auction IPO."

Question 3

What is the legal document called that is provided to potential investors and describes a new security offering?

Accepted Answer

A prospectus is a legal document provided to potential investors that details the offering of a new security. It includes information about the company issuing the security, the terms of the security, and the risks associated with investing in the security. The prospectus must be filed with the Securities and Exchange Commission (SEC) and made available to the public before the security can be sold.

Question 4

Which one of the following statements concerning the issuance of long-term debt is correct?

Accepted Answer

Private placements, such as direct placements, often have more restrictive covenants compared to public issues, as they are negotiated directly with a small group of investors.

Question 5

Which one of the following terms is defined as an underwriting for which the underwriters assume full responsibility for any unsold shares?

Accepted Answer

In a firm commitment underwriting, the underwriters agree to purchase all of the shares being offered and assume full responsibility for any unsold shares.

Question 6

Which one of the following projects is most apt to be financed with venture capital?

Accepted Answer

Venture capital is often used for new and innovative products, like the prototype for a newly patented tool by an individual inventor. The other options describe projects that are less risky and more suited for traditional financing methods.

Question 7

A Green Shoe provision can be defined as a(n):

Accepted Answer

A Green Shoe provision, also known as an overallotment option, allows the underwriters of an IPO to purchase and sell additional shares, up to 15% of the original offering, if the demand for the IPO exceeds the initial supply. This helps to stabilize the stock price and provides the underwriters with more flexibility in managing the supply and demand for the stock. A and B are incorrect because they do not accurately describe a Green Shoe provision. D and E are incorrect because they describe different types of price auctions, which are not related to a Green Shoe provision.

Question 8

Which stage of venture capital financing provides the funding needed to develop a working model of a new product?

Accepted Answer

Seed money is the initial stage of venture capital financing which provides the funding needed to develop a working model of a new product. It is provided to entrepreneurs who have an idea or concept but need the funds to get started.

Question 9

Which one of the following best describes an initial public offering?

Accepted Answer

An initial public offering (IPO) is when a company issues its shares to the general public for the first time. It is the first sale of equity shares to the general public, making choice A the best choice.

Question 10

A publicly-traded firm has just decided to issue an additional 10,000 shares of common stock.The firm plans to offer these shares to the general public next month.Which term applies to this issue of securities?

Accepted Answer

The term that applies to this issue of securities is seasoned equity offer. This term refers to an issue of additional shares by a publicly-traded company that has already issued an initial public offering (IPO) and is seeking to raise additional funds. It differs from an IPO, which is the first sale of a company's stock to the public, and a private placement, which involves the sale of securities directly to a limited number of institutional investors. An in-house offering refers to the sale of securities to employees of the company, while a rights offering involves the sale of shares to existing shareholders in proportion to their existing holdings.

Question 11

Artic Adventures just filed the required paperwork with the SEC that contains all of the material information related to their upcoming IPO.What is the name associated with this paperwork?

Accepted Answer

A registration statement is the required paperwork that a company must file with the SEC in order to initiate an IPO. It contains all of the material information related to the company's business, financials, and risks. The other options (Comment letter, Security agreement, Red herring) are not specific to the IPO process, and a prospectus is typically created after the registration statement is filed, once the SEC has completed its review and provided comments.

Question 12

Which of these qualifications must you meet to participate as an investor in crowdfunding?
I.Ten or more years of experience as a venture capitalist
II.Net income of $200,000 or more in two of the last three years
III.SEC licensed
IV.Net worth of $1 million or more

Accepted Answer

To participate as an investor in crowdfunding, individuals must meet either the net income or net worth requirements set by the SEC. Option II requires a net income of $200,000 or more in two of the last three years, while option IV requires a net worth of $1 million or more. Options I and III are not applicable to all investors.

Question 13

Which one of the following is the name given to a registration of securities under SEC 415 that permits a firm to issue the registered securities over a 2-year period?

Accepted Answer

A shelf registration under SEC 415 allows a firm to register securities and then issue them over a two-year period, giving the firm flexibility in timing the actual issuances. It is called a "shelf" because the securities are registered and kept on a "shelf" until the issuer is ready to sell them.

Question 14

The specified period of time following an IPO when insiders are prevented from selling their shares is called the:

Accepted Answer

The lockup period is the specified period of time following an IPO when insiders are prevented from selling their shares. This is done to prevent a sudden influx of shares that could drive down the share price. The quiet period refers to the time before an IPO when the company is restricted from promoting or discussing the offering. The comment period is a time during the regulatory process when the public can submit feedback and opinions. The Green Shoe period refers to an option available to underwriters to sell additional shares if demand is high. The waiting period usually refers to the time between filing for a merger/acquisition and receiving regulatory approval.

Question 15

Which one of these parties is primarily responsible for the pricing and selling of new securities to the general public?

Accepted Answer

Underwriters are the primary parties responsible for pricing and selling new securities to the general public. They help companies determine the price of their securities, buy the securities from the issuer, and then sell them to the public. Investment advisors provide advice on investing in securities, specialists facilitate the trading of securities on stock exchanges, securities dealers buy and sell securities in the secondary market, and venture capitalists provide financing to start-up companies.

Question 16

Which one of the following best fits the description of a private placement?

Accepted Answer

A private placement involves selling securities directly to a small group of investors, such as an insurance company, rather than through public markets.

Question 17

The difference between the price an underwriter pays to a securities' issuer and the price at which the securities are offered for sale is called the:

Accepted Answer

The difference between the price an underwriter pays and the price at which the securities are offered for sale is known as the spread. This spread represents the underwriter's compensation, including expenses and profit margins. Thus, option C is the correct answer. The underwriter's costs of purchasing securities (the underwriting spread) differ from the underwriter's fees for distributing securities (the underwriting fee).

Question 18

Kite Flyers recently offered 6,000 shares of stock for sale but only received payment from its underwriters for the 4,500 shares they sold.What type of underwriting was this?

Accepted Answer

In a "best efforts" cash offer, the underwriter does not guarantee the sale of all the shares but agrees to sell as many as possible, which matches the scenario where only 4,500 out of 6,000 shares were sold.

Question 19

What is the group of underwriters called who share both the risks and the marketing responsibilities for a securities offering?

Accepted Answer

The group of underwriters that share both the risks and the marketing responsibilities for a securities offering is called a syndicate.

Question 20

Individual or limited partner venture capitalists generally:

Accepted Answer

Individual or limited partner venture capitalists generally seek an exit strategy, which means they aim to make a profitable exit from their investment in a startup or small business within a set timeframe, typically 3-7 years. This is because they invest their own money and want to make a return on investment.

Quiz 19: Raising Capital