FIN 300 Final Exam

What is the amount of the risk premium on a U.S. Treasury bill if the risk-free rate is 2.8 percent and the market rate of return is 8.35 percent?

0 % --There is no excess return, or risk premium, for a risk-free security such as the T-bill.

Underwriters generally:

Accept the risk of selling the new securities in exchange for the gross spread.

Roy owns 200 shares of R.T.F., Inc. He has opted not to participate in the current rights offering by this firm. As a result, Roy will most likely be subject to:

Dilution

Trevor is the CEO of Harvest Foods, which is a privately held corporation. What is the first step he must take if he wishes to take Harvest Foods public?

Gain board approval.

To convince investors to accept greater volatility, you must:

Increase the risk premium.

Individual investors who continually monitor the financial markets seeking mispriced securities:

Make the markets increasingly more efficient.

All of the following are supporting arguments in favor of IPO underpricing except which one?

Provides better returns to issuing firms.

To purchase a share in a rights offering, an existing shareholder generally just needs to:

Submit the required number of rights along with the subscription price.

Which one of the following is a key goal of the aftermarket period?

Supporting the market price for a new securities issue.

Efficient financial markets fluctuate continuously because:

The markets are continually reacting to new information.

With Dutch auction underwriting:

all successful bidders pay the same price.

D.L. Jones & Co. recently went public. The firm received $20.80 a share on the entire offer of 25,000 shares. Keeser & Co. served as the underwriter and sold 23,700 shares to the public at an offer price of $22 a share. What type of underwriting was this?

firm commitment

The average compound return earned per year over a multiyear period is called the _____ average return.

geometric

Which one of the following is probably the most successful means of finding venture capital?

personal contacts

Alberto currently owns 2,500 shares of Southern Tools. He has just been notified that the firm is issuing additional shares and he is being given a chance to purchase some of these shares prior to the shares being offered to the general public. What is this type of an offer called?

rights offer

Individual investors might avoid requesting 100 shares in an upcoming IPO because they:

Are more apt to receive shares if the IPO is under allocated.