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Which one of the following describes a Green Shoe provision?


A) Determination of underwriters' fees
B) Guarantee of sale for all offered shares
C) Price auction
D) Overallotment option
E) Description of issue excluding the offer price

F) C) and E)
G) A) and D)

Correct Answer

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Which one of the following is probably the most effective means of increasing investors' interest in an IPO?


A) Extending the lockup period
B) Underpricing the IPO
C) Eliminating the quiet period
D) Issuing the IPO through a rights offering
E) Eliminating the Green Shoe option

F) A) and B)
G) B) and C)

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Which one of the following is an intended result of a lockup agreement?


A) Temporarily supporting the market price of IPO shares
B) Maximizing the return to a firm's original owners from an initial spike in the market price of IPO shares
C) Increasing the volume of trading for shares of a recent IPO
D) Limiting the price volatility of recent IPO shares caused by day trading
E) Guaranteeing a minimum number of sold shares for an IPO

F) B) and E)
G) A) and B)

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The total direct costs of a debt issue,when expressed as a percentage of gross proceeds,tends to:


A) increase as the quality of the debt increases.
B) decrease as the size of the issue decreases.
C) decrease as the proceeds of the bond issue increase.
D) decrease when the bonds are convertible rather than straight.
E) be relatively the same regardless of the type or quality of the debt issue.

F) All of the above
G) A) and B)

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Lewis Materials recently offered 15,000 shares of stock but only received payment for 12,500 shares since that was all the shares the underwriters could sell.What type of underwriting was this?


A) Syndicated
B) Private placement
C) Firm commitment
D) Dutch Auction
E) Best efforts

F) A) and E)
G) A) and B)

Correct Answer

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Scott placed an order with his broker to purchase 1,000 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $23 a share.The number of shares allocated to Scott along with the closing stock price at the end of the first day of trading for each stock,are as follows: Scott placed an order with his broker to purchase 1,000 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $23 a share.The number of shares allocated to Scott along with the closing stock price at the end of the first day of trading for each stock,are as follows: What is Scott's total profit or loss on these three stocks as of the end of the first day of trading for each stock? A) -$380 B) -$240 C) $100 D) $1,220 E) $1,690 What is Scott's total profit or loss on these three stocks as of the end of the first day of trading for each stock?


A) -$380
B) -$240
C) $100
D) $1,220
E) $1,690

F) A) and E)
G) C) and E)

Correct Answer

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What is the advertisement,commonly found in financial newspapers,that announces a public offering of securities and provides the name of the underwriters called?


A) Tombstone
B) Red herring
C) Prospectus
D) Green Shoe
E) Underwriter's ad

F) A) and C)
G) None of the above

Correct Answer

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


A) A direct placement of debt generally has more restrictive covenants than a public issue.
B) Private placements generally have shorter maturities than term loans.
C) All U.S.debt issues, private and public, must be registered with the SEC.
D) It is easier to renegotiate a public issue than it is a private issue of debt.
E) Rarely is debt issued privately in the U.S.

F) A) and D)
G) A) and B)

Correct Answer

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Which one of the following correctly states a qualification an issuer must meet to be qualified to use Rule 415 for shelf registration?


A) The issuer cannot have defaulted on its debt within the past five years.
B) The issuer must have an investment grade rating.
C) The issuer must never have violated the Securities Act of 1934.
D) The issuer must have outstanding stock with a market value in excess of $250 million.
E) The issuer must never have defaulted on its debt.

F) B) and E)
G) A) and D)

Correct Answer

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Franklin Oil issued 150,000 shares of stock last week.The underwriters charged a 7.5 percent spread in exchange for agreeing to a firm commitment.The legal and accounting fees amounted to $310,000 and the company incurred $65,000 in indirect costs.The offer price was $31 a share.Within the first hour of trading,the stock price increased to $34 a share.What was the flotation cost as a percentage of the funds raised?


A) 20.89 percent
B) 24.03 percent
C) 24.47 percent
D) 26.55 percent
E) 29.89 percent

F) A) and B)
G) C) and D)

Correct Answer

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Lunar Excursions wants to do an IPO but is very uncertain that underwriters will set the most optimal offer price for the securities.Which one of the following might the firm consider to address this uncertainty?


A) Extended lockup period
B) Extended quiet period
C) Dutch auction underwriting
D) Best efforts underwriting
E) Standby underwriting

F) A) and D)
G) All of the above

Correct Answer

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Alicia placed an order with her broker to purchase 500 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $16 a share.The number of shares allocated to Alicia along with the closing stock price at the end of the first day of trading for each stock,are as follows: Alicia placed an order with her broker to purchase 500 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $16 a share.The number of shares allocated to Alicia along with the closing stock price at the end of the first day of trading for each stock,are as follows: What is Alicia's total profit or loss on these three stocks as of the end of the first day of trading for each stock? A) -$425 B) -$260 C) -$150 D) $375 E) $550 What is Alicia's total profit or loss on these three stocks as of the end of the first day of trading for each stock?


A) -$425
B) -$260
C) -$150
D) $375
E) $550

F) All of the above
G) A) and B)

Correct Answer

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Which one of the following statements concerning debt issues is correct?


A) A prospectus is required for equity issues but not for debt issues.
B) The only difference between a term loan and a private placement is the size of the issue.
C) Firms often pay higher interest rates on term loans than on public issues of debt.
D) Direct long-term loans must be registered with the SEC.
E) The flotation costs of issuing debt tend to be more expensive than for issuing equity.

F) C) and D)
G) B) and D)

Correct Answer

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What is the primary purpose of a lockup agreement?


A) Ensures the lead underwriter maintains an economic interest in the IPO it is managing
B) Ensures the issuer of new securities receives a minimally agreed upon amount from the issue
C) Ensures no research reports are issued during the waiting period
D) Ensures company insiders maintain an economic interest in the issuer of an IPO for a minimum period of time
E) Ensures an IPO is not underpriced by more than 5 percent

F) A) and E)
G) B) and D)

Correct Answer

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Which of the following are important factors to consider when seeking a venture capitalist? I.exit strategy II.management style III.personal contacts IV.financial strength


A) I and III only
B) II and IV only
C) III and IV only
D) II, III, and IV only
E) I, II, III, and IV

F) A) and B)
G) C) and E)

Correct Answer

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Miller Tool is a successful manufacturer of both consumer and industrial hand tools and is publicly owned.The firm has several positive net present value projects that it would like to pursue and thus decided to issue additional shares of common stock.As a result of this stock issue,the firm's stock price declined.Explain why this occurred when the proceeds of the issue are being used to fund positive net present value projects.

Correct Answer

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The textbook offers three possible reaso...

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The quiet period is designed to do which one of the following?


A) Prevent the original investors in a firm from selling their shares and destabilizing a security's price during the first six months of public trading.
B) Ensure that all potential investors have fair access to identical information.
C) Ensure that all bidders are heard in a Dutch auction.
D) Stabilize the aftermarket.
E) Quiet the market so the SEC can fairly evaluate a new securities offer.

F) C) and D)
G) A) and E)

Correct Answer

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Assume the SEC approved the registration statement for a new securities issue this morning.Which one of the following statements must be true about this issue?


A) The red herrings can now be distributed as the distribution was awaiting the SEC approval.
B) The issuer is following all the required rules and regulations in regards to this issue.
C) The final prospectuses were all delivered or the SEC would not have approved the issue.
D) The waiting period started when the approval was received this morning.
E) The SEC believes the issue will be a profitable investment for all purchases made at the offer price.

F) A) and B)
G) A) and C)

Correct Answer

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Stock prices tend to _____ following the announcement of a new equity issue and tend to _____ following the announcement of a new debt issue.


A) decrease; remain relatively constant
B) decrease; increase
C) increase; remain relatively constant
D) increase; decrease
E) increase; increase

F) B) and D)
G) A) and E)

Correct Answer

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Kendal placed an order with her broker to purchase 300 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $21 a share.The number of shares allocated to Kendal,along with the closing stock price at the end of the first day of trading for each stock,are as follows: Kendal placed an order with her broker to purchase 300 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $21 a share.The number of shares allocated to Kendal,along with the closing stock price at the end of the first day of trading for each stock,are as follows: What is Kendal's total profit or loss on these three stocks as of the end of the first day of trading for each stock? A) -$120 B) -$30 C) $0 D) $170 E) $540 What is Kendal's total profit or loss on these three stocks as of the end of the first day of trading for each stock?


A) -$120
B) -$30
C) $0
D) $170
E) $540

F) A) and E)
G) B) and D)

Correct Answer

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