Multiple-Choice Quiz

Previous Quiz | Back to Main Index | Next Quiz

Chapter 19: The Capital Market

Just click on the button next to each answer and you'll get immediate feedback.

Note: Your browser must support JavaScript in order to use this quiz.

1. Letter stock is

a handwritten certificate representing a corporate IOU.

a mass mailing offering a security for sale.

securities issued by the United States Postal Service.

privately placed common stock that cannot be immediately resold to the general public.

2. A preliminary prospectus is known as a

golden parachute.

red herring.

blue sky.

green shoe.

3. If an investment banker has agreed to sell a new issue of securities on a best-efforts basis, the issue

most likely involves an unusually large stock offering.

most likely involves bonds instead of common stock.

results in no assumption of underwriting risk by the investment banker.

most likely involves a well-established, large company.

4. The actual market value of a right will differ from its theoretical value for all of the following reasons EXCEPT for:

the size of the firm's marginal tax rate.

the amount of transactions costs incurred.

investor speculation.

the irregular exercise and sale of rights over the subscription period.

5. In a common stock rights offering the subscription price is generally:

set equal to the current market price of the stock.

set below the current market price of the stock.

set above the current market price of the stock.

set after the stock goes "ex-rights."

6. When the investment banker bears the risk of not being able to sell a new security at the established price, this is known as:

a best efforts offering.

underwriting.

shelf registration.

making a market.

7. To say that there is "asymmetric information" in the issuing of common stock or debt means that

investors have nearly perfect information.

the markets have nearly perfect information.

investors have more accurate information than management has.

management has more accurate information than investors have.

8. In calculating the value of one right when the stock is selling "rights-on," the analyst needs to know the number of rights needed to buy one share of stock and:

the subscription price per share.

the transactions costs involved.

the price-earnings ratio of the firm's stock.

the length of the rights offering period.

9. A best efforts offering is sometimes used in connection with a of new, long-term securities.

private placement

privileged subscription

public issue

all of the above

10. permits what is known as a shelf registration.

SEC Rule 144

SEC Rule 144a

SEC Rule 415

SEC Form 13D

11. A company can ensure the complete success of a rights offering by making use of a

standby arrangement.

oversubscription privilege.

green shoe provision.

shelf registration.

12. The market price of K-T-Lew Corporation's common stock is $60 per share, and each share gives its owner one subscription right. Four rights are required to purchase an additional share of common stock at the subscription price of $54 per share. If the common stock is currently selling "rights-on," the theoretical value of a right is closest to

$0.96

$1.20

$1.50

$6.00

13. (See Question 12 above.) The theoretical value of one share of K-T-Lew common stock when it goes "ex-rights" is closest to

$54.00

$58.50

$58.80

$59.04

14. Financial intermediaries .

do not invest in new long-term securities

include insurance companies and pension funds

include the national and regional stock exchanges

are usually underwriting syndicates

15. The Sarbanes-Oxley Act of 2002 (SOX) was largely a response to:

a series of corporate and accounting frauds involving Enron, Arthur Andersen, WorldCom, and numerous others.

a dramatic rise in the US trade deficit.

charges of excessive compensation to top corporate executives.

rising complaints by investors and security analysts over the financial accounting for stock options.

The following item is NEW to the 13th edition.

16. Because of US "Securities Offering Reform" can take advantage of a special streamlined "shelf registration" process that provides for automatic effectiveness of a registration statement upon filing with the SEC (i.e., no SEC review).

only unseasoned issuers

only seasoned issuers

only well-known seasoned issuers (WKSIs)

only seasoned issuers and well-known seasoned issuers (WKSIs)

Retake Quiz