FIN384 Module 7

Because NYSE has transitioned into "hybrid market" "specialists" will probably become less important "specialists" will probably become more important most securities traded on NYSE will be convertible trading costs should rise

"Specialists" will probably become less important

An order to the New York Stock Exchange to buy or sell at the best price available is called A. a limit order. B. a stop order. C. a market order. D. none of the above.

a market order

Which of the following is not an example of capital market securities? A. convertible bonds B. common stocks C. mortgages D. commercial paper

commercial paper

Which of the following is not associated with common stock? limited liability contractural ownership residual

contractual

Which of the following terms is not associated with common stock? A. residual B. contractual C. limited liability D. ownership

contractual

T or F: All common stockholders have one vote per share owned

False

T or F: Preferred stockholders have the same voting rights as common shareholders

False

T or F: Primary capital market securities provide marketability and possibilities for investors to alter the riskiness of their portfolios

False

T or F: investors sell a stock short when they anticipate that its price will rise

False

_____ are not barriers to corporate control to eliminate agency problems a. ​Poison pills b. ​Golden parachutes c. ​Antitakeover amendments d. ​Leveraged buyouts

Leveraged Buyouts

______ are not barriers to corporate control to eliminate agency problems a. ​Poison pills b. ​Golden parachutes c. ​Antitakeover amendments d. ​Leveraged buyouts

Leveraged buyouts

As between the NASDAQ and the NYSE, The NYSE lists more companies with smaller average market capitalization NASDAQ lists more companies with larger average market capitalization The NYSE lists more companies with larger average market capitalization NASDAQ lists more companies with smaller average market capitalization

NASDAQ lists more companies with smaller average market capitalization

The largest organized exchange in the United States, with the largest market capitalization, is the a. New York Stock Exchange. b. Pacific Stock Exchange. c. American Stock Exchange. d. Midwest Stock Exchange.

New York Stock Exchange

Which of the following is NOT true with respect to preferred stock? a. All of these are correct. b. Payment of preferred dividends is not a tax-deductible expense. c. Normally, the owners of preferred stock do not participate in the profits of the firm beyond the stated fixed annual dividend. d. If the firm does not have sufficient earnings to pay the preferred stock dividends, the preferred shareholders may force the firm into bankruptcy. e. Preferred stock usually does not allow for significant voting rights.

d. If the firm does not have sufficient earnings to pay the preferred stock dividends, the preferred shareholders may force the firm into bankruptcy.

In preparing for an IPO, a prospectus must be filed with the a. ​Federal Trade Commission. b. ​Consumer Financial Protection Bureau. c. ​Securities and Exchange Commission. d. ​stock market where the firm will be listed.

Securities and Exchange Commission

The household sectors is the largest surplus sector and invests in the capital markets a. directly by purchasing stocks and bonds. b. directly by issuing assets payable in the capital market. c. indirectly through mutual funds and pension funds d. both a and c

d. both a and c

Which security would be in default if periodic payments were not made? A. common stock B. convertible preferred stock C. debentures D. preferred stock

debentures

If corporation splits its common stock 3 for 1, which of the following will change? market capitalization earnings per share book value net income

earnings per share

Which of the following is not a result of advances in technology and competition in equity markets 24-hour trading of some stocks the development of a national market system higher transaction costs globalization of equity markets

higher transaction costs

Security exchanges provide a valuable function in that they a. create interest in stocks. b. increase the marketability of securities. c. provide a legal way to gamble. d. supply money to deficit spending units. e. both a and d

increase the marketability of securities

When a corporation first decides to issue stock to the public, it engages in a(n) a. seasoned equity offering. b. None of these are correct. c. secondary offering. d. initial public offering.

initial public offering

The _____ is a value-weighted index of stock prices of large U.S. firms a. ​Nasdaq b. ​New York Stock Exchange Index c. ​Standard and Poor's 500 d. ​Dow Jones Industrial Average

Standard and Poor's 500

The first time issuance of shares by a specific firm to the public is referred to as an a. ​secondary stock offering. b. ​stock repurchase. c. ​initial public offering (IPO). d. ​initial rights issue.

initial public offering (IPO)

The first-time issuance of share by a specific firm to the public is referred to as a(n) a. ​stock repurchase. b. ​secondary stock offering. c. ​initial public offering (IPO). d. ​initial rights issue.

initial public offering (IPO)

A(n) ______ is sold in the _____ market A. initial public offering; secondary B. initial public offering; primary C. seasoned offering; secondary

initial public offering; primary

A(n) ______ is sold in the ______ market A. seasoned offering; secondary B. initial public offering; secondary C. initial public offering; primary

initial public offering; primary

The percentage bid-ask spread for equity securities A. is higher with higher priced stocks. B. is large for very small and very large transactions. C. is less for less than round lot trades. D. all of the above.

is large for very small and very large transactions

The _____ the trading volume of a stock, the _____ the spread a. lower; narrower b. None of these are correct. c. larger; wider d. larger; narrower

larger, narrower

Because NASDAQ is a "dealer market", bid-ask spreads will likely be negligible low but material in relation to traded value high in relation to traded value difficult to measure

low but material in relation to traded value

The daily pink sheets of the OTC market were replaced by A. by the NASDAQ system. B. by the brokers relaying information to their customers. C. by the emerging dealer market. D. when the NASD required that dealers be registered.

The NASDAQ system

A short seller a. is essentially lending the stock to another investor and will ultimately receive that stock back from that investor. b. earns the difference between what was initially paid for the stock versus what the stock is later sold for. c. makes a profit equal to the difference between the original selling price and the price paid for the stock, after subtracting any dividend payments made. d. None of these are correct. e. anticipates that the price of the stock sold short will increase.

makes a profit equal to the difference between the original selling price and the price paid for the stock, after subtracting any dividend payments made

Preferred shareholders a. ​typically have the same voting rights as common shareholders. b. ​may not receive a dividend every year. c. ​do not share the ownership of the firm with common shareholders . d. ​typically participate in the profits of the firm beyond the stated fixed annual dividend.

may not receive a dividend every year

Which of the following is not associated with the primary market? underwriter's spread shelf registration rights offering over-the-counter

over-the-counter

When investors buy stock with borrowed funds, this is sometimes referred to as a. ​a margin call. b. ​use of proxy. c. ​a margin residual claim. d. ​purchasing stock on margin.

purchasing stock on margin

A firm can avoid the lag time between registering new securities with the SEC and actually selling them by using a. ​shelf registration. b. ​preemptive rights. c. ​a proxy. d. ​a margin call.

shelf registration

Which type of order can only apply to a position the investor already holds?

stop loss

"nonparticipating" means that preferred shareholders do not vote the preferred stock dividend is fixed preferred shareholders share the "residual claim" shareholders do not direct day-to-day activities

the preferred stock dividend is fixed

The bid-ask spread is negatively related to a.order costs b.risk c.trading volume d.inventory costs

trading volume

Select the answer that best depicts increasing required rate of return by investor A. common stock, corporate bonds, treasury bonds, agency debt B. treasury bonds, agency bonds, corporate bonds, common stock C. treasury bonds, agency bonds, common stock, preferred stock D. agency bonds, corporate bonds, treasury bonds, preferred stock

treasury bonds, agency bonds, corporate bonds, common stock

Which of the following market participants functions in the primary equity equity markets? dealer specialist broker underwriter

underwriter

A ______ represents ownership of a foreign stock a. ​AMEX b. ​ADR c. ​SEAQ d. ​Nasdaq

ADR

Which of the following is not true about American Depository Receipts (ADRs)? A. An ADR enhances a company's visibility, status and profile in the U.S. and internationally among investors. B. ADRs are issued in the U.S. and are denominated in U.S. dollars. All cash flows to the investor are in dollars. C. An ADR decreases the foreign firm's U.S. liquidity (and potentially total global issuer liquidity). D. ADRs are claims issued by U.S. financial intermediaries (FIs) against shares in foreign companies, with the shares held in custody by the FIs for investors.

C. An ADR decreases the foreign firm's U.S. liquidity (and potentially total global issuer liquidity).

Which of the four types of secondary markets listed below involves considerable costs and no third party? A. brokered B. dealer C. auction D. direct search

Direct search

If many investors quickly sell an IPO stock in the secondary market, there will be _____ on the stock's price. a. None of these are correct. b. downward pressure c. upward pressure d. no additional pressure

Downward pressure

Which of the following is not true about secondary markets . A buyer may incur search costs and find a seller on their own, called a direct search. B. A broker may bring buyer and seller together, charging a commission. C. A dealer may buy and sell securities from his inventory, reducing search costs. The dealer's return is the bid/ask spread. D. An auction market allocates the selling shares to the highest bidder, providing a buyer/seller. E. all of the above are true.

E. all of the above are true.

T or F: A market price for common stock with a high degree of depth, breadth, and resiliency will be quite stable

True

T or F: A market with breadth has a large number of diverse investors

True

T or F: A wide spread between the bid and as quotes of a security dealer may represent weak operational market efficiency

True

T or F: The Dow Jones Industrial Average is a price-weighted index

True

"ADRs" are a way of foreign investors to by U.S. stocks on foreign exchanges U.S. investors to buy foreign stocks on U.S. exchanges U.S. investors to by foreign stocks on foreign exchanges U.S. firms to tap foreign equity markets

U.S. Investors to buy foreign stocks on U.S. exchanges

By market capitalization, the largest U.S. stock index is the DJIA S&P 500 Russell 2000 Wilshire 5000

Wilshire 5000