Unit 1 (Quiz 1)
An investor with no other positions in LMN stock purchases 600 shares at the market. This investor is
long LMN stock and bullish. With no other positions in LMN stock, the purchase was an opening transaction. Having purchased the stock in an opening transaction, the investor now has a long position in LMN stock and is bullish—wanting to see the stock rise in value.
A corporation increases capitalization by selling shares of stock which can either come from a new issue or previously authorized but unissued shares. Total stock outstanding must
never exceed the number of shares authorized. A corporation's bylaws state the maximum number of shares authorized to be issued. Therefore, issued shares, those in the hands of public shareholders (outstanding shares) can never exceed the number of shares that were authorized. While those outstanding shares can therefore never be greater than the number of shares issued they could equal the number of shares issued.
In the capital markets, securities such as stocks and bonds can be
offered by both public and private sectors. In capital markets, both public and private sectors sell securities in order to raise funds. These securities can be bought and sold (traded) in the capital markets by individuals and institutions alike.
During the cooling off period, underwriters would be allowed to do all of the following except
take orders. During the cooling off period, sales are not allowed.
Certain investors are deemed accredited when they have a net worth of
$1 million, not including net equity in the primary residence. An accredited investor is defined as a natural person who has a net worth of $1 million or more, not including net equity in a primary residence; or has had an annual income of $200,000 or more in each of the two most recent years (or $300,000 jointly with a spouse) and who has a reasonable expectation of reaching the same income level during the current year.
ABC currently has the following quotes: Bid Ask Size 10.00 10.50 3 × 2 10.20 10.45 4 × 3 10.25 10.6 03 × 2 What is the spread in ABC?
0.20 The spread is computed as the difference between the lowest ask and the highest bid. In this case, the lowest ask is 10.45 and the highest bid is 10.25. Therefore, 10.45 - 10.25 = 0.20.
What is the maximum number of nonaccredited investors allowed in a Regulation D exempt transaction under Rule 506(b)?
35 The SEC does not require registration of an offering under Regulation D as long as there are no more than 35 nonaccredited investors. There is no limit to the number of accredited investors that may invest in the private placement.
You quote ABC stock to a customer 67 bid for 1,000 shares, 700 offered at 67.10. Which of the following is true?
67.10 is currently the highest price any buyer is willing to pay. 67 bid for, offered at 67.10 is the quote. The spread is the difference between the bid and offer: 0.10. The bid (67) is the highest price any buyer is willing to pay, and the offer (67.10) is the lowest price any seller is willing to accept. The offer is also known as the ask price.
A private placement is exempt from registration under the Act of 1933. can be sold to individual accredited investors.
A private placement is exempt from registration. While securities offered in a private placement are generally sold to institutional investors, they can also be sold to small groups of wealthy individuals who meet net worth and income criteria, known as accredited investors.
An investor receives a quote of 62.55—62.60 for Fontana Steel Corp. common stock. Which of these is true?
Purchasing the stock will cost $62.60 per share. Quotes are provided in bid-ask form. The first number— the bid—is the price an investor can sell a security. The second number—the ask—is the price an investor will need to pay to buy the security. The spread is the difference between these two numbers.
Which of the following would take place in the primary market?
Securities sold to the public by the issuer When an issuer is selling its securities, that is a primary market transaction.
The market for Dizzy Rides Inc., is at $52 per share. Your customer would like to sell his shares for $55, and believes the stock will climb to that level in the next two to three weeks. What order should he place?
Sell limit 55 GTC Only the good-til-canceled (GTC) order will live past today. All the others will cancel if unexecuted by the end of the day. If there is no qualifier then it is a day order. Fill-or-kill (FOK) orders that cannot be filled immediately are cancelled. An all-or-none order would need to also be marked GTC to go into the next day.
A FINRA member purchases 200 shares of BigBox Stores, Inc., common stock on behalf of a customer at a price of $40 per share. The firm charges the customer $80 for this transaction. Which of the following is true?
The firm is acting as a broker. The firm is acting as an agent for the customer. There is no mention of an inventory or a mark-up, and the firm charges a commission. A commission of 1% is well within the guidelines.
Which of the following best describes how a sell stop at 39 order would be filled?
The next available price after the market price falls to 39 Sell stop orders are placed below the current market price and become market orders once the price touches or passes through the stop price.
A customer enters an order to buy 325 shares of Bryce Bridges, Inc., at 17. Which of the following regarding these order instructions is true?
The order can be executed at 17 or lower. This is a buy limit order (at 17) and can only be executed to purchase XYZ at 17 or better. Because this is an instruction to buy, purchasing better than the limit would be lower than the limit.
Regarding primary offerings, which of the following is true?
There is no limit to the number of primary offerings a corporation can issue. While a corporation can have only one IPO, there is no limit to the number of SPOs or APOs it can issue. IPOs, SPOs, and APOs are all primary offerings—those where the offering proceeds go to the issuer.
It is expected that financial markets
have transparent pricing for assets. A number of different assets, such as equities (stocks), debt (bonds), currencies, and derivative products like options can be offered and traded in the financial markets. These markets are expected to have transparent pricing aligning with supply and demand and to adhere to basic rules and regulations.
When investors open a position by going long the security, they can close the position by
selling the security. Going long a security means that it was purchased. If a position was opened by purchasing the security, it would be closed by selling it.
The requirement for a supplemental prospectus to be filed before each sale is applicable to
shelf registration sales. Through a shelf offering, an issuer who is already a publically traded company can register new securities without selling any of the shares until later or waiting to sell a portion of the shares. For securities offered via a shelf registration, a supplemental prospectus must be filed with the Securities and Exchange Commission (SEC) before each sale.
Great Plains Securities, an OTC market maker, holds inventory and provides liquidity for Modulux Homes, an NYSE listed company. This is an example of
the third market. When an exchange-listed security trades in the OTC market, it is being traded in the third market. The fourth market is composed of electronic communication networks and is primarily used by institutional investors. Primary markets are for raising capital.
Indications of interest taken during the cooling-off period are nonbinding on the issuer and underwriters. nonbinding on the investor.
Indications of interest are binding on neither buyers nor sellers.
For the primary market, which of the following is true?
Issuer transactions occur in the primary market, and securities are offered at a public offering price. The primary market, regulated by the 1933 Securities Act, is where securities are offered by issuers (issuer transactions) at an offering price. The sales proceeds of these transactions go to the issuer.
All of the following are examples of issuer transactions except
a CFO. Issuer transactions are those where the proceeds of the offering go to the issuing company. APOs (additional public offerings), IPOs (initial public offerings), and SPOs (subsequent public offerings) all result in funds going to the issuer. A CFO (chief financial officer) is an officer of a corporation.
An offering in which one or more stockholders in the corporation are selling all or a portion of their own shares to the investing public for the first time is known as
a secondary offering. A secondary offering is one in which one or more stockholders in the corporation are selling all or some of their shares to the public. The sale proceeds for these shares are paid to the selling stockholders rather than to the corporation.
Rules regarding restricted persons state that each of the following is considered immediate family except
an aunt or an uncle. Rules regarding restricted persons define immediate family as spouses, parents, siblings, in-laws, and children. Aunts and uncles and grandparents are excluded (not considered immediate family).
A corporation sells shares to the investing public in order to raise capital. This is known as
an issuer transaction. The primary market is where securities are sold to the investing public by the issuer wishing to raise capital. These are known as primary market or issuer transactions.
All of the following phrases are associated with a broker-dealer acting as a dealer except
"charges a commission for the transaction." When a BD acts as a principal (dealer, market maker), they are selling securities from the firm's inventory to a customer or buying a security from a customer for the dealer's inventory. The firm profits on the difference between what the firm paid for the security and what the customer pays, which is called the spread (or mark-up). There is no commission when a firm acts in a principal capacity.
