Series 7 - New Issues

A resident of a state who acquires stock pursuant to Rule 147 (intrastate offerings) is prohibited from selling the stock to a nonresident of that state for how many months? A) 12 B) 3 C) 6 D) 18

6

In some underwritings, the anticipated demand for a new issue is higher than the syndicate estimated. Because they believe they will be able to sell more shares than are available, they will want to invoke A) the red shoe clause. B) the green shoe clause. C) an additional public offering. D) their preemptive rights.

the green shoe clause.

The underwriting of most corporate issues is done on a negotiated basis. The investment banker who negotiates with the issuer on a firm commitment underwriting is known as A) the principal underwriter. B) the syndicate manager. C) the chief negotiator. D) the prime investment banker.

the syndicate manager.

A Western account underwriting of $100 million in municipal bonds is established. A member firm agrees to underwrite 10% of the issue and sells out its entire allotment of $10 million. However, some of the other firms participating in the underwriting are unable to sell their full allocation, and $15 million of the bonds remain unsold. What is the financial obligation of the underwriting firm who sold their entire allotment? A) Pooled responsibility for $15 million B) $1.5 million C) $0 D) $150,000

$0

Which of the following securities is not exempt from the registration provisions of the Securities Act of 1933? A) A U.S. government bond B) A high-quality corporate promissory note maturing in 180 days C) A new stock being offered in three states D) An equity security issued in only one state, solely to residents of that state

A new stock being offered in three states

Which of the following underwriting arrangements is associated with an invitation, typically found in The Bond Buyer, directed at investment bankers and broker-dealers, intended to solicit interest in underwriting a new municipal issue? A) Competitive bid B) All or none C) Best efforts D) Negotiated

Competitive bid

Which of the following securities issue is nonexempt, requiring registration under the Securities Act of 1933? A) Corporate bonds B) Municipal bonds C) Debt instruments with maturities of 270 days or less D) Treasury bonds

Corporate bonds

Which of the following securities are exempt from the registration and disclosure provisions of the Securities Act of 1933? Any interest in a railroad equipment trust certificate Municipal bonds U.S. government securities Commercial paper maturing in 270 days or less A) I, II, III, and IV B) I and III C) I and II D) II and III

I, II, III, and IV

The true interest cost (TIC) method of evaluating municipal bids A) is required by the MSRB if a financial advisory relationship exists. B) can only be used for term bonds. C) is required by the MSRB if a control relationship exists. D) considers the time value of cash flows.

considers the time value of cash flows.

Your firm is a member of an underwriting syndicate for an issue of municipal bonds. The municipal syndicate release terms letter states that the bonds are being offered net, with a two-point concession and a half-point additional takedown. If your firm sells $100,000 of these bonds to a retail customer, it will receive a credit of A) $100,000. B) $500. C) $2,000. D) $2,500.

$2,500.

The Jefferson County Water Works revenue bond is being underwritten by a syndicate led by ABC Securities, Inc. The bond has serial maturities going out up to 25 years with a balloon at 30. The coupons range from 3.2% to 4.1%, and all the bonds are offered at par. The terms of the syndicate agreement call for a total takedown of ¾ of a point with a selling concession of ½ point. A syndicate member who sells 500 of the bonds will earn A) $2,500. B) $3,750. C) $6,250. D) $7,500.

$3,750.

To be designated as an accredited investor under Regulation D, a married couple must have an income in excess of A) $200,000 for the past two years with an expectation of reaching that level again this year. B) $500,000 for the past two years with an expectation of reaching that level again this year. C) $300,000 for the past two years with an expectation of reaching that level again this year. D) $100,000 for the past two years with an expectation of reaching that level again this year.

$300,000 for the past two years with an expectation of reaching that level again this year.

A customer enters an order to sell 100 ABC at $43.13 Stop Limit. After the order is entered, the tape shows the following trades: The order is: I elected at 43.00II elected at 43.25III executed at 43.13IV executed at 43.25 AI and III BI and IV CII and III DII and IV

AI and III

Who signs the agreement among underwriters for a municipal bond issue? A) Managing underwriter and bond counsel B) Managing underwriter and trustee C) All members of the underwriting syndicate D) Managing underwriter and issuer

All members of the underwriting syndicate

Which of the following is contained in an official notice of sale? A) Agreement among underwriters B) Delivery date C) Amount of good-faith deposit required with the bid D) Reoffering yields on the bond

Amount of good-faith deposit required with the bid

Which of the following statements regarding a red herring is not true? A) A red herring is used to accept indications of interest from investors. B) Additional information may be added to a red herring at a later date. C) An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser. D) The final offering price does not appear in a red herring.

An agent may accept funds to be placed in escrow until the effective date if the request to do so is made by a potential purchaser.

A technical analyst has been charting the price movements of ABC stock. The stock has been fluctuating in price between $49 and $54 per share for the past 3 months. If the analyst expects a breakout through the support level, which order should be placed? A Sell (Short) ABC @ $48 GTC BSell (Short) ABC @ $48 Stop GTC CSell (Short) ABC @ $55 GTC DSell (Short) ABC @ $55 Stop GTC

BSell (Short) ABC @ $48 Stop GTC

An underwriting of corporate securities in which the underwriters have no financial risk is A) a firm commitment underwriting with a market-out clause. B) a best efforts underwriting. C) a firm commitment underwriting. D) a contingency underwriting.

a best efforts underwriting.

Each of the following trades occurs in the secondary market except A) an agent buying unlisted securities for a client. B) a corporate bond syndicate selling new issues to the public. C) a specialist (designated market maker) on the NYSE buying stock as a principal. D) an insurance company buying corporate bonds directly from another insurance company.

a corporate bond syndicate selling new issues to the public.

For the underwriting of a municipal bond issue, competitive bids are submitted by underwriters as A) a best efforts underwriting commitment. B) an all-or-none commitment. C) a standby underwriting commitment. D) a firm commitment.

a firm commitment.

Each of the following persons is accredited under Rule 501 of Regulation D except A) an institution. B) an officer of the issuer. C) an individual with a net worth of $200,000 or more. D) an individual with annual income of $200,000 or more in the past two years.

an individual with a net worth of $200,000 or more.

A limited partnership brought to market through a Rule 506(b) private placement may be sold to any of the following except A) 35 unaccredited investors. B) an unlimited number of accredited investors. C) an investor with over $1 million net worth. D) an unlimited number of unaccredited investors.

an unlimited number of unaccredited investors.

The Securities and Exchange Commission regulates all of the following except A) initial public stock offerings. B) investment adviser and client relationships. C) the secondary market. D) intrastate securities offerings.

intrastate securities offerings.

A member of the board of directors of the Able Baker Charlie Company (ABCC) took her director's fees and purchased 200 shares of ABCC on the Nasdaq Stock Market at $20 per share. If she wished to sell these shares, compliance with Rule 144 would entail A) meeting neither a size limit nor a time limit. B) meeting a time limit, but not a size limit. C) meeting a size limit, but not a time limit. D) meeting both a size limit and a time limit.

meeting neither a size limit nor a time limit.

All of the following are exempt securities except A) bankers' acceptances. B) T-bills. C) municipal bond mutual funds. D) commercial paper.

municipal bond mutual funds.

All of the following deal with the secondary market except A) dealer quotes. B) broker's broker. C) notice of sale. D) Thomson's Muni Market Monitor (formerly Munifacts).

notice of sale.

A municipal issuer publishes an official notice of sale to indicate that the offering will be made A) on a negotiated basis. B) through a private placement. C) for none of these. D) on a competitive basis.

on a competitive basis.

If the State of Texas has solicited bids for a proposed municipal bond offering, the underwriters for that offering would be the syndicate that would A) sell the issue at the lowest price. B) sell the issue at the highest price. C) sell the issue at the lowest net interest cost to the State of Texas. D) generate the most proceeds for the State of Texas.

sell the issue at the lowest net interest cost to the State of Texas.

A due diligence meeting occurs between A) the FINRA member firm and FINRA's Corporate Finance Department to discuss the fairness of the underwriting spread on a pending public offering. B) all of these. C) the underwriter and the SEC before the issuance of a final prospectus to insert the public offering price and make any last-minute changes at the SEC's request. D) the issuing corporation and the underwriters to review and re-examine the full details of the pending underwriting and negotiate final terms to be included in the formal underwriting contract.

the issuing corporation and the underwriters to review and re-examine the full details of the pending underwriting and negotiate final terms to be included in the formal underwriting contract.

In a firm commitment underwriting of a municipal bond issue, when the syndicate manager makes the sale, the compensation is A) the manager's fee. B) the spread. C) the total takedown. D) the selling concession.

the spread.

The primary difference between an underwriting syndicate member and a selling group member in a firm commitment underwriting is that A) the price per share paid by the public (POP) is more if purchasing new shares from a selling group member. B) the securities offered by each differs within the offering. C) the size of a syndicate member firm will always be larger than a selling group member firm. D) the syndicate member assumes liability for unsold shares and the selling group member does not.

the syndicate member assumes liability for unsold shares and the selling group member does not.

If municipal securities are offered on an inverted scale, this means A) the coupon rates are higher than the yields. B) the yields on short-term maturities are higher than the yields on long-term maturities. C) the yields on long-term bonds are higher than yields on short- term bonds. D) the coupon rates on short-term bonds are higher than coupon rates on long-term bonds.

the yields on short-term maturities are higher than the yields on long-term maturities.

For a new issue municipal syndicate account, settlement of the account must occur A) within 30 calendar days after the issuer delivers the securities to the syndicate. B) within one year after the issuer delivers the securities to the syndicate. C) as soon as dealers who are not members of the syndicate request a bond. D) when the last bond is sold with no time limit imposed.

within 30 calendar days after the issuer delivers the securities to the syndicate.

Under which of the following terms does the underwriter act in a dealer capacity? A) Selling group B) Best efforts C) Syndicate D) Firm commitment

Firm commitment

The ABC Corporation would like to raise capital via a Regulation D private placement. Under Rule 506(c), which of the following statements is true? A) Private placements under Regulation D cannot be publicly advertised. B) Under Rule 506(c), a prospectus is only required for nonaccredited investors. C) If the offering is limited to no more than 35 nonaccredited investors, advertising is permitted. D) If the offering is limited to accredited investors, advertising is permitted.

If the offering is limited to accredited investors, advertising is permitted.

Which of the following is associated with a process whereby a municipal issuer first appoints and then works with the underwriters who will be establishing the interest rate and offering price for a new municipal bond issue? A) Negotiated underwriting B) Western underwriting C) Competitive bid D) Eastern underwriting

Negotiated underwriting

Your firm is bidding on a new general obligation bond issue. As the issuer weighs and evaluates the competitive bids, what factor will be most important in deciding who will be awarded the winning bid? A) Takedown B) Scale C) Concession D) Net interest cost

Net interest cost

Which of the following would exclude a bond from being covered under the Trust Indenture Act of 1939? A) Interstate offering B) Nonexempt debt securities C) Offering over $50 million D) Offering with a maturity of less than nine months

Offering with a maturity of less than nine months

TCB Corporation wants to offer $75 million worth of common stock solely to residents of its home state. The issue will not be registered at the federal level. What type of registration will TCB use to register with the state? A) Notice filing B) Coordination C) Regulation D D) Qualification

Qualification

Which of the following exemption provisions of the Act of 1933 may not be used for an initial offering of securities? A) Rule 147 B) Rule 144 C) Regulation A D) Regulation D

Rule 144

Which of the following documents spells out the rights of each member of the underwriting syndicate and how the issue is allocated? A) Syndicate letter B) Preliminary official statement C) Official notice of sale D) Legal opinion

Syndicate letter

A company is offering a private placement, with the intent of selling shares to nonaccredited investors up to the 35 allowed for in Regulation D. Which of the following is true? A) Anyone may be solicited. B) The offering may not be advertised. C) While the offering can be advertised to anyone, only accredited investors could be solicited to purchase shares. D) The offering can be advertised to anyone except the 35 nonaccredited investors.

The offering may not be advertised.

Danielle is the CFO of the XYZ Manufacturing Company. XYZ's shares are listed on the NYSE. She purchased shares of XYZ common stock through her registered representative of a FINRA member firm 165 days ago and, wishing to add on to her home, sells the stock and realizes a $50,000 profit. Under SEC rules, how will this transaction be treated? A) This is a violation of the rules on insider trading and could result in fines and/or imprisonment. B) Because the shares were purchased in the open market, she gets to keep the profit. C) The sale will be reversed and she will have her initial investment returned to her. D) This is considered a short-swing profit and it must inure to the benefit of the issuer.

This is considered a short-swing profit and it must inure to the benefit of the issuer.

Regarding a summary section and a statement of additional information (SAI) for management investment companies, which of the following is true? A) A summary section need not be included in the prospectus of a mutual fund. B) Both must be included in the prospectus of a management company. C) A statement of additional information need not be included in the prospectus of a management company. D) Neither are required to be in the prospectus of a mutual fund.

A statement of additional information need not be included in the prospectus of a management company.

A municipal bond underwriter looking in The Bond Buyer would recognize the percentage of new issues sold versus new issues offered for sale the prior week as A) the acceptance or placement ratio. B) the general obligation (GO) index. C) the visible supply. D) the revenue bond index.

the acceptance or placement ratio.

An underwriting spread is A) the amount a selling group receives. B) the amount a syndicate receives. C) the amount a managing underwriter receives. D) the difference between an offering price and the proceeds to an issuer.

the difference between an offering price and the proceeds to an issuer.

The spread in a municipal competitive bid is A) the excess of the dollar bid over par. B) the difference between the stated yield and reoffering price. C) the difference between the takedown price and reoffering price. D) the difference between the bid and production (the price at which the bonds are reoffered to the public).

the difference between the bid and production (the price at which the bonds are reoffered to the public).