FINA4000 F.E Chapter 10

Advances in technology and competition have created all but one of the following in equity markets? a. higher transaction costs b. the development of a national market system c. 24-hour trading of some stocks d. globalization of equity markets

a

All but one of the following are terms associated with common stock? a. contractual b. residual c. ownership d. limited liability

a

The bid-ask spread for equity securities tends to be _______ for more frequently traded stocks and _______ for stocks which have more traders with inside information. a. less; more b. less; less c. more; more d. more; less

a

Which of the four secondary markets listed below involves considerable costs and no third party? a. direct search b. brokered c. dealer d. auction

a

A shareholder in a troubled corporation is not likely to lose his/her a. money invested in the stock. b. house. c. dividends declared. d. par value.

b

All but one of the following are three major sources of active bids and offerings in a stock issue at a stock trading post on an exchange? a. floor brokers handling customer orders. b. limit price orders held by floor brokers. c. the specialists making trades for his/her own account. d. the specialist executing limit price orders.

b

In a board of directors election for five directors and straight voting, a majority group of shareholders will elect a. four directors. b. five directors. c. four or five depending on how the cumulative voters vote. d. the same proportional share of directors as their ownership share.

b

Investors with 30 per cent of the voting stock of a corporation, interested in a seat on the board of directors, had better have __________ voting privileges. a. straight b. cumulative c. proxy d. limited

b

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.

b

The NASDAQ system provides price input capability for a. brokers. b. dealers. c. stock-trading customers of dealers. d. the Securities and Exchange Commission.

b

The 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.

b

The security market line represents a. the amount of risk demanded for each unit of return. b. the rate of return for each unit of risk. c. the sum of the systematic and unsystematic risks. d. the risk/return tradeoff over time.

b

The underwriter's spread (%) is a. directly related to the size of the primary offering. b. directly related to the riskiness of the issue. c. greater when the shelf registration process is used. d. smaller for stocks than for bonds.

b

When constructing a stock market index, two items below are needed to start the index? a. the starting date and an estimate of future prices. b. the starting date and the base index value. c. the starting and ending date of the index. d. 100 is the base value, combined with the starting date.

b

Which of the four secondary markets listed below achieves economies of scale in search costs, but does not guarantee that orders will be executed promptly? a. direct search b. brokered c. dealer d. auction

b

All but one of the following is associated with characteristics of common stock? a. residual claim on income and assets b. proxy c. cumulative dividends d. dual-class stock

c

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.

c

In response to competition from foreign stock exchanges, U.S. stock exchanges have a. shortened their trading hours to decrease the volatility of stock prices. b. implemented after-hours discussion session between floor brokers and customers. c. expanded electronic after-hour trading for stocks. d. listed more stocks to compete with foreign stock exchanges.

c

Investors in well diversified stock portfolios are concerned about ________ risk. a. specific stock b. unsystematic c. systematic d. diversifiable

c

Stocks with beta values of one a. will have very predictable rates of return. b. will have little risk compared to the market portfolio. c. has had price variability similar to the market. d. has had a constant rate of return.

c

The daily pink sheets of the OTC market were replaced a. by the emerging dealer market. b. by the brokers relaying information to their customers. c. by the NASDAQ system. d. when the NASD required that dealers be registered.

c

The over-the-counter market trades ______ stocks than exchanges, and exchanges tend to list ________ companies. a. less; smaller b. less; larger c. more; larger d. more; smaller

c

The sale of securities to the public via an investment banker by a new corporation raising funds is called a. a seasoned offering. b. a secondary offering. c. an initial public offering. d. a best efforts offering.

c

The term shareholder equity implies a. a right to dividends. b. a contractual relationship with a corporation. c. an ownership claim. d. a prior claim on income and assets.

c

Which of the following is not an example of capital market securities? a. common stocks b. convertible bonds c. commercial paper d. mortgages

c

Which of the four secondary markets listed below minimizes price risk, but search costs are often high? a. direct search b. brokered c. dealer d. auction

c

A broker seeking to purchase an OTC stock a. must find a dealer in the stock. b. must find the most favorable price of the stock. c. might use a level 2 NASDAQ monitor. d. all of the above.

d

All but one of the following are reasons for not listing a stock on an exchange? a. limited trading in the stock b. small issue size c. having excellent support by NASD dealers d. having a large number of public shareholders

d

All but one of the following is associated with the over-the-counter market for stocks? a. NASD b. NASDAQ c. unlisted d. auction market

d

Regulators provide a valuable function for the capital markets because they a. try to keep the market participants honest. b. try to prevent excessive speculation from destabilizing the market. c. make sure all pertinent information about publicly traded securities is disclosed. d. all of the above

d

The New York Stock Exchange is a(n) ________ market. a. auction b. exchange c. secondary d. all of the above

d

The capital market is allocationally efficient if a. funds are channeled to their most productive use. b. market makers such as dealers and brokers are making reasonable, not excessive rates of return. c. only if informational and operational market efficiencies are high. d. both a and c.

d

The federal legislation that made the Securities and Exchange Commission responsible for the broad oversight of securities markets was a. Securities Act of 1933. b. Securities Exchange Act of 1935. c. The Investment Company Act of 1940. d. none of the above.

d

The globalization of the equity markets has led to: a. Electronically linking equity dealer and exchange markets is slowly leading toward a national market system. b. Electronically linking international markets has created 24 hour trading opportunities for some stocks. c. U. S. stock exchanges have extended (after hours) their normal trading hours in which shares are traded electronically, linking U. S. with the hours of international markets. d. all of the above

d

The household sector is the largest surplus sector and invests in the capital market a. directly by purchasing stocks and bonds. b. directly by issuing assets payable in the capital market. c. both directly (owning stocks) and indirectly (pension fund reserves, etc.) d. both a and c above

d

The primary federal regulator of stock markets a. are the state securities commissions in fifty states. b. is the NASD. c. is the Securities Investor Protection Corporation. d. is the Securities and Exchange Commission.

d

The secondary markets for capital market securities have facilitated economic growth in our country because a. they help provide marketability for capital market claims. b. they have increased investors' willingness to buy capital market claims. c. they make people more willing to invest because they can more easily diversify their risk. d. all of the above

d

Which of the following is not true about American Depository Receipts (ADR)? a. An American Depository Receipt (ADR) is a negotiable issued by the U.S. financial intermediaries (FIs) against shares in foreign companies, with the shares held in custody by the FIs for 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. Enhances a company's visibility, status and profile in the U.S. and internationally among investors, consumers and customers. d. Decreases the foreign firm's U.S. liquidity (and potentially total global issuer liquidity).

d

Which of the four secondary markets listed below has low search costs, price risk, and the expense of a bid/ask spread? a. direct search b. brokered c. dealer d. auction

d

Which of the following is true about secondary markets? a. 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 sell/buy (bid/ask) securities from an inventory of securities, 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