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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 1

Multiple Choice

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The term ________ refers to investors who anticipate increases in stock prices.

A) bears
B) bulls
C) dogs
D) lions

Correct Answer

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B

Question 2

Multiple Choice

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Bonds offering a higher interest rate than other bonds of similar risk will likely sell at a

A) secondary market.
B) discount.
C) premium.
D) price equal to the face value of the bond.

Correct Answer

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Question 3

Multiple Choice

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Two kinds of equity financing are

Mini-Case Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million. The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company. -If stock is issued in Pirate Recording, analysts predict that the company has potential for strong growth. The prospects for dividend payments to stockholders, at least in the beginning, are not good. Pirate Recording will need to retain its earnings in order to grow rapidly. The firm's stock would most likely be classified as a(n)

A sinking fund provision decreases the risk of repayment in the minds of the investors.

Anjali's stockbroker called to inform her of a margin call that requires that she pay $1,000. This indicates that the value of Anjali's stock has

Mini-Case Penny Stock is the chairperson of Pirate Recording Company Inc. She is the person responsible for the tremendous growth this company has enjoyed over the past three years. It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli. These groups have generated profits of over $25 million. The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording. This incredible growth has delighted everyone at the company, but it has also created a major problem for Penny. Pirate Recording has never been a major player in the recording industry, primarily because of limited capital. In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment. The amount of new funds required to finance this needed expansion is $150 million. Penny has started to consult with others about how to finance this major expansion of the company. -Penny is impressed with contemporary high-tech companies that have listed their stock on an electronic telecommunications network of securities dealers who trade the stock. She is referring to firms such as Microsoft, Google, and Apple. Penny ideally would like her company's stock listed on the

Standard & Poor's currently rates Careful Corporation bonds as a D grade. This indicates that these bonds are

Online investors expect more expert advice than investors using traditional brokerage firms.

When issuing stock to obtain long-term funding, dividend payments are

Firms establish a ________ so that sufficient funds are available to repay bondholders on the maturity date.

The largest one-day drop in the stock market occurred in 1987-a 22% drop.

Your company is privately held but needs additional funding for a planned expansion. Having never issued stock to the public, your firm is well advised to seek the assistance of an investment banker prior to an initial public offering of stock.

For investors who desire the least possible risk, a share of stock in an established corporation provides the safest investment.

When comparing the investments of different mutual funds, little variation in the risk level exists.

Insider trading refers to someone who benefits unfairly from information about a security not available to the general public.

Securities markets help companies raise long-term debt and equity financing.

An investor placing a market order with a broker agrees to buy or sell a stock immediately at the best price available.

Recently, Josiah bought a bond with face value of $1,000. He paid $1,150 for the bond. His bond investment undoubtedly pays a higher interest rate than the going rate for similar bonds currently out on the market.

The NASDAQ reports its own average that investors follow to observe trends in the market.