Corporate Finance Chapter 2 Test

You recently sold 200 shares of Disney stock, and the transfer was made through a broker. This is an example of: A money market transaction. A primary market transaction. A secondary market transaction. A futures market transaction. An over-the-counter market transaction.

A secondary market transaction.

Which of the following statements is CORRECT? The most important difference between spot markets versus futures markets is the maturity of the instruments that are traded. Spot market transactions involve securities that have maturities of less than one year whereas futures markets transactions involve securities with maturities greater than one year. Capital market transactions involve only preferred stock or common stock. If General Electric were to issue new stock this year, this would be considered a secondary market transaction since the company already has stock outstanding. Both NASDAQ dealers and "specialists" on the NYSE hold inventories of stocks. Money market transactions do not involve securities denominated in currencies other than the U.S. dollar.

Both NASDAQ dealers and "specialists" on the NYSE hold inventories of stocks.

Which of the following statements is CORRECT? The NYSE does not exist as a physical location. Rather it represents a loose collection of dealers who trade stock electronically. An example of a primary market transaction would be your uncle transferring 100 shares of Walmart stock to you as a birthday gift. Capital market instruments include both long-term debt and common stocks. If your uncle in New York sold 100 shares of Microsoft through his broker to an investor in Los Angeles, this would be a primary market transaction. While the two frequently perform similar functions, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise large blocks of capital from investors.

Capital market instruments include both long-term debt and common stocks.

Which of the following is a primary market transaction? You sell 200 shares of IBM stock on the NYSE through your broker. You buy 200 shares of IBM stock from your brother. The trade is not made through a broker; you just give him cash and he gives you the stock. One financial institution buys 200,000 shares of IBM stock from another institution. An investment banker arranges the transaction. IBM sells 2,000,000 shares of treasury stock to its employees when they exercise options that were granted in prior years.

IBM issues 2,000,000 shares of new stock and sells them to the public through an investment banker.

Which of the following is an example of a capital market instrument? Commercial paper. Preferred stock. U.S. Treasury bills. Banker's acceptances. Money market mutual funds.

Preferred stock.

Money markets are markets for Foreign currencies. Consumer automobile loans. Common stocks. Long-term bonds. Short-term debt securities such as Treasury bills and commercial paper.

Short-term debt securities such as Treasury bills and commercial paper.

Which of the following statements is CORRECT? While the distinctions are becoming blurred, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties. The NYSE operates as an auction market, whereas NASDAQ is an example of a dealer market. Money market mutual funds usually invest their money in a well-diversified portfolio of liquid common stocks. Money markets are markets for long-term debt and common stocks. A liquid security is a security whose value is derived from the price of some other "underlying" asset.

The NYSE operates as an auction market, whereas NASDAQ is an example of a dealer market.

Which of the following statements is CORRECT? The New York Stock Exchange is an auction market, and it has a physical location. Home mortgage loans are traded in the money market. If an investor sells shares of stock through a broker, then it would be a primary market transaction. Capital markets deal only with common stocks and other equity securities. While the distinctions are blurring, investment banks generally specialize in lending money, whereas commercial banks generally help companies raise capital from other parties.

The New York Stock Exchange is an auction market, and it has a physical location.

You recently sold 100 shares of Microsoft stock to your brother at a family reunion. At the reunion your brother gave you a check for the stock and you gave your brother the stock certificates. Which of the following best describes this transaction? This is an example of a direct transfer of capital. This is an example of a primary market transaction. This is an example of an exchange of physical assets. This is an example of a money market transaction. This is an example of a derivative market transaction.

This is an example of a direct transfer of capital.

The weather report says that a devastating and unexpected freeze is expected to hit Florida tonight, during the peak of the citrus harvest. In an efficient market one would expect the price of Florida Orange's stock to a. drop immediately. b. remain unchanged. c. increase immediately. d. gradually decline for the next several weeks. e. gradually increase for the next several weeks.

a. drop immediately.

In its IPO, Jillian's Imprints, a small publishing house, offered stock at a price of $10.00 per share. The underwriters of this IPO had a spread of 6.5% per share. If 2 million shares were sold, what funds did Jillian's receive from the IPO? a. $5.61 million b. $18.70 million c. $20.57 million d. $22.44 million

b. $18.70 million

At what stage of the IPO process do senior management and the lead underwriters travel to promote the company and explain their rationale for the offer price to the underwriters' largest customers? a. when filing with the SEC b. after initial price range is established c. when managing risk d. when matching buyers to sellers of the stock

b. after initial price range is established

If you believe in the _______ form of the EMH, you believe that stock prices reflect all information that can be derived by examining market trading data such as the history of past stock prices, trading volume or short interest. a. semistrong b. strong c. weak d. all of the above e. none of the above

c. weak

When Patricia sells her General Motors common stock at the same time that Brian purchases the same amount of GM stock, GM receives: a. the dollar value of the transaction. b. the dollar amount of the transaction, less brokerage fees. c. only the par value of the common stock. d. nothing.

d. nothing.

As part of the registration statement, the preliminary prospectus circulates to investors before the stock is offered. This preliminary prospectus is also called a(n) ________. a. IPO filing b. 10-K filing c. blue whale d. red herring

d. red herring