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

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Kate is the sole founder of the exclusive retail store,Kate's Interiors.Kate identified additional locations that she believed offered profitable opportunities for expansion so decided to take her firm public in order to finance her expansion plans.Bob is an investor who purchased shares of Kate's Interiors stock at the offer price.After one month as a public firm,Kate realized that Bob had earned $1.1 million in profit on his investment and had already cashed out and moved on.Kate,on the other hand,had made no profit and still owns her shares.Explain how this could happen.

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As the founder,Kate is probably subject ...

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

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

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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) B) and C)
G) None of the above

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Venture capital is most apt to be the source of funding for which one of the following?


A) Bankruptcy reorganization
B) Global expansion for an established firm
C) New, high-risk venture
D) Seasonal production
E) Daily operations for an established, profitable firm

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

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Which one of the following best describes a private placement?


A) Interim financing for a new, high-risk entity
B) Long-term loan by a limited number of investors
C) Two-year direct business loan
D) Three-year loan to a firm by its original founder
E) New equity issue offered to current shareholders

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

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Quali Tech wants to raise $21 million to purchase equipment by issuing new securities.Management estimates the issue will cost the firm $320,000 for accounting,legal,and other costs.The underwriting spread is 7.5 percent and the issue price is $22 per share.How many shares of stock must be sold if Quali Tech is to receive sufficient funds to purchase all the desired equipment?


A) 1,008,010 shares
B) 1,021,121 shares
C) 1,047,666 shares
D) 1,147,666 shares
E) 1,110,333 shares

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

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

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

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

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

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Currently,you own 5.4 percent of the outstanding stock of Keiffer Industries.The firm has decided to issue additional shares of stock and has given you the first option to purchase 5.4 percent of those additional shares.Which one of the following will you be participating in if you opt to purchase the shares you have been offered?


A) Rights offer
B) Red herring offer
C) Private placement
D) IPO
E) General cash offer

F) None of the above
G) B) and D)

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Which one of the following specifies the length of time that must pass after an initial public offering (IPO) before insiders are permitted to sell their shares?


A) Lockup period
B) Quiet period
C) Comment period
D) Green Shoe period
E) Rights offer period

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

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ADP,Inc.needs to raise $32 million to finance its expansion into new markets.The company will sell new shares of equity via a general cash offering to raise the needed funds.If the offer price is $45 per share and the company's underwriters charge an 8.25 percent spread,how many shares need to be sold?


A) 648,729 shares
B) 691,208 shares
C) 723,467 shares
D) 775,053 shares
E) 775,323 shares

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

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Which one of the following tends to be true for the average investor?


A) They frequently earn initially high returns on IPOs when shares are undersubscribed.
B) They generally receive their full allocation of shares even when an IPO is oversubscribed.
C) They often encounter the "winner's curse."
D) They are protected from losses by the Green Shoe provision.
E) Average investors are not allowed to purchase IPOs at the offer price.

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

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The Green Shoe option is most apt to be exercised when an IPO is ______ and _____.


A) underpriced; oversubscribed
B) underpriced; undersubscribed
C) correctly priced; neither over- nor undersubscribed
D) overpriced; oversubscribed
E) overpriced; undersubscribed

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

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


A) Shares held by a firm's founder
B) Any newly issued shares offered to the general public
C) Shares issued to the public on a cash basis
D) The first sale of equity shares to the general public
E) Any shares initially offered to a firm's existing shareholders

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

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

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

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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.

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The textbook offers three possible reaso...

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Which of the following duties belong to the underwriters of a firm commitment securities offer? I.Duty to offer the Green Shoe provision to all investors who buy at the offer price II.Duty to set the offer price III.Duty to distribute the offered shares IV.Duty to purchase any unsold shares


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

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

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A.B.Securities assists issuers by pricing and selling new securities to the general public.Which one of the following terms best fits the role that A.B.Securities is playing?


A) Underwriter
B) Investment advisor
C) Specialist
D) Securities dealer
E) Venture capitalist

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

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Kim placed an order with her broker to purchase 400 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 Kim,along with the closing stock price at the end of the first day of trading for each stock,are as follows: Kim placed an order with her broker to purchase 400 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 Kim,along with the closing stock price at the end of the first day of trading for each stock,are as follows: What is Kim's total profit or loss on these three stocks as of the end of the first day of trading for each stock? A) -$1,330 B) -$540 C) -$230 D) $1,330 E) $2,370 What is Kim's total profit or loss on these three stocks as of the end of the first day of trading for each stock?


A) -$1,330
B) -$540
C) -$230
D) $1,330
E) $2,370

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

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