Series 79
Subchapter C Corporations are characterized by which of the following?
Taxation at the corporate level
Master Limited partnerships (MLPs) generally operate in all of the following sectors EXCEPT
Technology
To understand the competitive environment that an initial public offering will face and the relative supply of comparable offerings in the market at the same time, an investment banker could check
The IPO calendar
Rules against manipulation in the secondary market sale of exempt securities are addressed in
The Securities Exchange Act of 1934
The regulation that requires registration of all exchanges and the persons that trade on them is
The Securities Exchange Act of 1934 regulates and requires the registrations of exchanges, broker-dealers and their representatives, and other participants in the secondary market.
The regulation that requires the appointment of an independent fiduciary to act on behalf of bondholders and periodic filing of financial information by corporate issuers is
The Trust Indenture Act of 1939
Under most circumstances a general securities firm is required to have a minimum of
Two principals
Detailed information regarding a company's business, segments, competition, and customers is typically found in its
10-K
Prior to the sale of a fixed price IPO, a member must have obtained a representation of an investor's eligibility to invest in IPOs within the previous
12 months
How long does a typical auction process take from the initial decision to sell until signing a contract with the buyer?
90-180 days
Arrange the following steps related to an arbitration proceeding in the order in which they occur, first to last.
A Submission agreement is filed with NAMC,The Respondent submits additional information, The Arbitrator(s) review(s) the case, The decision is communicated to parties involved.
Regulation M, Rule 105, prohibits purchasing securities in a public offering and simultaneously selling short the same securities during the restricted period. Who is subject to this prohibition?
Anyone
Under the Rules of SEC 10b-18 an issuer with an average trading volume less than $1 million per day or a public float value below $150 million is unable to
Are discouraged from trading its own securities within 30 minutes of the end of the trading day
After the filing of its 10-Q for its recently finished fiscal 3rd quarter, a public company announces an acquisition to be financed entirely with a new bond issue. In making the acquisition, the acquirer will also be repaying all of the target's existing debt. In calculating the pro forma Enterprise Value / LTM EBITDA trading multiple for the company, what adjustments does the banker need to make?
Both the numerator and denominator need to be adjusted to calculate the pro forma Enterprise Value / LTM EBITDA trading multiple for the acquirer. For the numerator, the acquirer's Enterprise Value is increased by the dollar amount of the new bond, while the denominator is increased by the target's LTM EBITDA (including synergies).
In which SEC filing would a fairness opinion typically be located?
DEFM14A
The Registration Statement that may be used for all newly issued securities issued by U.S. domiciled issuers under the Securities Act of 1933 is
Form S-1
Which of the following measures would have a contractionary impact on the economy?
Increasing bank reserve requirements
Internal Revenue Code 388(h)(10) describes which of the following?
Internal Revenue Code 388(h)(10) describes an asset sale where the assets are marked up to their purchase price. This affords favorable tax treatment to the purchaser in the form of increased depreciation.
All of the following statements describe fiscal policy EXCEPT
It attempts to stabilize the economy by controlling interest rates and the supply of money
Which of the following statements are true regarding an inverted yield curve?
It depicts that long-term debt instruments have a lower yield than short-term debt instruments. AND It generally predicts lower interest rates in the future
In an M&A transaction, how does the use of a meaningful portion of stock versus all cash generally impact the premium paid for the target company?
It results in a lower premium. The use of stock allows target shareholders to share in the upside (including synergies) of the combined entity. Therefore, they are typically willing to accept a lower premium than in an all-cash transaction.
Which of the following statements regarding interest rates are TRUE?
Long-term rates are more volatile than short-term rates. AND An interest rate change will cause more change in long-term bond prices than in short-term bond prices.
The Hart-Scott-Rodino Act of 1976 applies to
M&A activity compliance with antitrust guidelines
In evaluating first round bids, the sell-side advisor assesses all of the following EXCEPT
Mark-up of definitive agreement
A company from which sector might trade on the basis of an Enterprise Value / Capacity multiple?
Mining
The letters NAV stand for
Net asset value refers to an investment company's total assets less its total liabilities. Mutual funds and unit investment trusts calculate their NAV every business day, often after market close. Closed-end funds are not subject to the requirement to calculate NAV on a daily basis.
FINRA has cancelled the registration of a registered representative due to a violation of SEC regulations. In this case the representative may
Not be associated with a member firm in any capacity
A member firm's supervisory system must include provisions that require inspection of each
OSJ at least once per year. Branch office that does not supervise other locations at least once every 3 years.
During an applicable Regulation M restricted activity period, an issuer is restricted from all of the following activities EXCEPT
Odd lots transactions (typically less than 100 shares) during the applicable restricted period may be completed by offering participants in accordance with applicable written policies and procedures defined by Regulation M. This is allowed because they are not likely to influence the price of the security.
Investment bankers typically track all of the following terms for high yield bond deal precedent transactions in the marketplace EXCEPT
P/E ratios
The underwriting spread is defined as the difference between the
POP and the underwriting proceeds
Which of the following statements are true regarding arbitration and mediation proceedings?
Parties may select their own mediator for mediation proceedings. Parties may choose to halt mediation proceedings at any time during the process.
All of the following statements are true regarding statutory disqualification EXCEPT
Persons subject to statutory disqualification are barred from working in the securities industry for a minimum of two years
Which two of the following are reliable sources for finding bookrunners on a recently announced public securities offering?
Press release announcing the transaction. AND Prospectus cover
Which of the following is used to help buyers screen for attractive M&A targets by sector?
SIC code
A company that is the target of a tender offer must file which schedule to announce its response to the offer?
Schedule 14D-9.
The process through which an issuer chooses a team of underwriters to lead an offering is known as a
bakeoff
Firms are required to report to FINRA arbitration settlements against a representative when the amount exceeds
$15,000
A company has an inventory turns multiple of 4.0x and COGS of $750 million. What is the inventory balance?
$187.5 million
Which of the following terms may be contained in a preferred stock term sheet for a private placement?
cash dividend,Warrants
An issuer intending to distribute securities under Rule 147
may sell securities only to residents of that state
FINRA Rule 5122 governs which of the following?
private placements of securities issued by members
All of the following are considered coincident economic indicators EXCEPT
the unemployment rate
In an underwriting transaction, syndicate expenses
are deducted from the underwriting fee
respondent must supply information regarding a notice of claim within
45 days
A broker-dealer is required to file notice of the resignation of a representative to FINRA within
30 days
Which of the following statements regarding debt securities are true?
A purchaser of a bond is a creditor of the corporation. AND Bonds are generally issued with a par value of $1,000.
In all of the following scenarios, diluted shares outstanding are equal to basic shares outstanding, EXCEPT
All exercisable options are in the money
All of the following statements regarding credit ratings and rating agencies are true EXCEPT
Although high ratings often make a bond more marketable, they do not ensure low volatility and high liquidity, as there are many other factors that contribute to the price of a bond, namely interest rates.
Rule 144 provides which of the following?
An exemption from the '33 Act and permits the resale of restricted or control securities to the public
Which of the following statements regarding statutory disqualification are TRUE?
An individual or firm may be subject to a statutory disqualification II. Certain persons may re-enter or continue in the securities industry following a statutory disqualification III. Disqualifying events can include bars, injunctions suspensions and expulsions from certain activities, SROs and exchanges IV. Once it becomes aware of a statutory disqualifying event a member is obligated to report the event to FINRA
All of the following are key Representations ("Reps") and Warranties made by a seller in a definitive agreement EXCEPT
Closing conditions
A 5% bond is purchased at $1150 and the maturity is 15 years. The bond's yield-to-maturity is closest to
Following the "rule of thumb method" you can calculate yield to maturity of a bond trading at a premium as (annual interest - annualized premium) / avg price of the bond. Note that the annual interest is $50 (5% of $1000); the annualized premium is $10 ($150 premium divided by 15 years to maturity); the average price of the bond is $1,075 ($1000 par value + $1150 purchase price / 2). Therefore, YTM can be estimated as ($50 - $10) / $1,075 = 3.72%.
During the second round of a M&A sale, the buy-side adviser typically performs all of the following analyses for its client EXCEPT
Detailed study of the target's manufacturing processes and software applications
The thirty companies that are represented in the Dow Jones Industrial Average include which of the following industries?
Financial. Retail.
Which type of exchange ratio is most common in a stock transaction?
Fixed
Fairness opinions became commonplace after a 1985 Delaware Supreme Court decision held that the directors of a major public company had
Grossly undervalued their company's worth
In an M&A sale, first round bids are expected to include all of the following EXCEPT
HSR approval
Why might a seller prefer an asset sale to a stock sale?
Higher valuation
In developing its Firm Element program, a broker-dealer is expected to
I. give separate consideration to training needs of representatives and supervisors II. conduct a needs analysis prior to defining the training requirements III. develop a written training plan that specifies the way the plan will be administered during the year IV. Review quarterly Regulatory Element completion reports for areas where further training may be beneficial
In which circumstances is a Schedule 13E-3 filing required?
In a "going private" LBO
Which of the following best describes the material adverse changes (MAC) provision in a definitive agreement?
It permits the buyer to avoid closing the transaction due to discovery or occurrence of a substantial detail after signing
In accordance with the Securities Exchange Act of 1934, an issuer that repurchases its own outstanding stock
May purchase shares through only one broker-dealer each day during normal market hours. Can purchase no more than 25% of the average daily trading volume
When is the underwriter of a Direct Participation Program required to make a "liquidity disclosure" to prospective investors about prior programs offered by the same sponsor?
Only if the sponsor previously offered a program designed to liquidate by a given date
Mediation is used for the settlement of a dispute between parties
Only if there is written agreement between the parties involved
A transaction involving the sale of new securities from an issuer to an investor is a(n)
Primary offering
The deal manager is engaging in stabilization just after an IPO comes to market. However, the manager's bids are not executed until after all independent bids (at the same price) have been filled. This requirement is called
Priority
The document that is circulated to inform accredited investors of the terms of a private placement is typically referred to as a(n)
Private Placement Memorandum
Rule 144 applies to the sale of securities that
Rule 144 allows public resale of restricted and control securities if a number of conditions are met. Restricted securities are those securities that have been acquired through a private placement or other exempt transaction (i.e. Regulation S for overseas offerings), and are not registered. Control securities are those held by an affiliate of the issuing company. An affiliate is a person, such as a director or large shareholder, in a relationship of control with the issuer. Control securities are not always subject to a holding period. They must satisfy a holding period only if they are also restricted. Securities acquired by non-affiliates through an open market transaction are neither restricted nor control stock, and are not subject to Rule 144.
In a formal sale process, who typically takes the lead in preparing the first draft of the definitive agreement?
Sell-side legal counsel
Under the Small Business Administration's Venture Capital Program, what types of entities provide venture capital to small companies?
Small Business Investment Companies
How is the U.S. Trustee compensated in a Chapter 11 bankruptcy?
The U.S. Trustee receives a fee paid by the debtor in possession (DIP) quarterly, based on disbursements during the quarter.
Use the information in Exhibit 33 to answer the following question. Company E is considered comparable to companies A, B, C and D. Company E had LTM EBITDA of $600 million. What is a reasonable estimate for Company E's Enterprise Value?
The average EV/EBITDA multiple among the four comparable companies is 7.4x. Applying that multiple to Company E's LTM EBITDA of $600 million produces an enterprise value of $4.44 billion (7.4 x 600). Of the given answer choices, $4.5 billion is the closest.
A quote of 95:07
The quote 95:07 is read as 95 and 7/32nds - a discounted Treasury Note or Treasury Bond. T-notes and T-bonds are quoted in 32nds; Treasury bills are quoted on an annualized discount percentage, or basis. The price of a T-Bond quoted at 95 and 7/32nds of $1,000 = $952.19.
XYZ stock is trading for $50 per share. It paid a dividend of $.50 last quarter. What is the current yield of XYZ stock?
The current yield of common stock is determined by dividing the annual dividend by the current market price. $2.00/$50 = 4%. Note that the equation requires the annual dividend, not the quarterly dividend.
A member firm's supervisory system must include all of the following EXCEPT
The designation of at least two registered principals in each Office of Supervisory Jurisdiction.
When comparing rights and warrants, which of the following statements is TRUE?
The exercise price of a right is generally below the price of the stock when the right is issued; the exercise price of the warrant is generally above the price of the stock when it is issued
Jones Securities, Inc. is the lead underwriter for NewCo, which plans to sell 5 million shares of stock to the public at an offering price of $27.00 per share. The manager's fee is $.25, the underwriting fee is $.20 and the full takedown is $.85. What is the total proceeds received by NewCo?
The total spread to the syndicate is the manager's fee of $.25 plus the $.85 full takedown, for a total of $1.10. The underwriting fee is a component of the full takedown, so is not taken into account in the calculation. The issuer receives the offering price minus the spread: $25.90 per share x 5 million shares = $129.5 million
The over-the-counter trading of exchange-listed securities takes place in which of the following markets?
Third market
In a fixed price IPO, FINRA Rule 5130 requires the book-running underwriter to file with FINRA a final list of distribution participants and their commitments, by what deadline?
Three days after the offering date
Which of the following debt instruments is always issued at a discount?
Treasury Bills are always issued at a discount and mature to their face value, as they are zero coupon securities. All zeroes are issued at a discount.
All of the following are non-marketable U.S. Government securities EXCEPT
Treasury Bills trade actively on the secondary market. SLGS, Series EE and Series HH are non-marketable instruments that are issued to subscribers and cannot be sold in the secondary market.
An underwriter prepares the financial statements for inclusion in a registration statement for an issuer that has an operating history of six years. Financial statements have been audited for the last four years. At minimum, balance sheets must be included for how many years?
Two years of audited balance sheets are required for the registration, although more may be supplied. They must be for the two most recently completed fiscal years. Unaudited balance sheets are not allowed in a registration statement.
Which of the following U.S. government securities cannot be traded on the secondary market?
U.S. Savings Bonds
An executive officer of a public company engages in a swap agreement that results in a change of beneficial ownership of the company's equity shares. Must this be reported under the Sarbanes-Oxley Act, and if so, how soon?
Yes, it must be reported before the end of the second business day after the swap
Company N has 15,000,000 shares outstanding and the following trading data over the previous five weeks: Five weeks ago: 192,000 shares traded Four weeks ago: 200,000 shares traded Three weeks ago: 245,000 shares traded Two weeks ago: 187,000 shares traded Last week: 225,000 shares traded What is the maximum number of shares that could be sold by a corporate insider over the next three months?
Under Rule 144, a corporate insider can seller the greater of 1% of the outstanding shares or the average weekly trading volume over the previous four weeks. In this case, 1% of the outstanding shares = 150,000 while the average weekly trading volume over the previous four weeks = 214,250. Therefore, a corporate insider could sell 214,250 shares.
At which milestones does a buyer make a public announcement regarding an acquisition?
Upon signing a definitive agreement. AND Upon deal closing
An investor owns a 9% coupon bond with par value of $1,000. The bond can be called after 5 years for a call premium of 104.5. Assuming the bond is called away at the earliest possible date, how much money will the investor receive upon redemption?
When a bond is called away, an investor receives the call premium (104.5 percent of par, or $1,045) plus the final semi-annual coupon payment: 9% x $1,000 par / 2 = $45. Therefore, $1,045 call premium + $45 interest = $1,090
When is a Schedule 14D-9 required to be filed?
Within 10 business days of Schedule TO filing
An investment bank (a FINRA member) is hired to provide a fairness opinion. A large amount of information the firm uses is provided by the client company. Only a small part of information is independently verified by the member bank. Is this practice permitted under FINRA rules?
Yes, provided the member discloses whether it independently verified information
Restricted and control securities under Rule 144 are
acquired in the open market or in a private placement
Interim, committed financing provided to the borrower prior to the issuance of permanent capital is known as
bridge financing
NASD Rule 2770 requires which of the following?
disclosure of price in selling agreements
The measure of a bond's sensitivity to changing interest rates is known as
duration
Securities that are exchangeable into a defined number of shares of common stock at the holder's option are known as
equity-linked securities
According to Regulation M Rules 101 and 102, FINRA must receive notification from offering participants
for listed and unlisted securities. whether or not a restricted period applies
A pink sheet security is one that
might also be a penny stock
The market where short-term obligations such as Treasury Bills, commercial paper and bankers' acceptances are bought and sold is the
money market
When compared to ownership rights of common stock, owners of preferred stock generally
receive higher dividends
A final prospectus must always include
the offering price