FIN 321 SB 15

Firms looking to raise funds will file registration statements with the

Securities and Exchange Commission (SEC)

The three roles usually played by underwriters for their client companies are

advisor, stock buyer, stock reseller

Wealthy individuals who provide equity investment for start-ups are sometimes called ___ investors.

angel

Wealthy individuals who personally provide equity investment to start-up firms are called

angel investors

An underwriter unwilling to take on the risk of firm commitment underwriting may issue an IPO on a ___ basis.

best effort

The type of underwriting used for risky issues of stock that may not sell out completely is called _____ underwriting.

best efforts

The type of underwriting used for risky issues of stock that may not sell out completely is called ______ underwriting.

best efforts

The most common method used in the United States to determine demand for and price of a stock in an IPO is called the ___ method

bookbuilding

Stock prices decline at the announcement of a new issue because investors believe that managers are signaling that the stock price is currently

overpriced

When a company sells an entire issue of securities to a small group of institutional investors like life insurance companies, pension funds, etc., it is called a(an)

private placement

A document required by the SEC for new public issues, which contains the issuing firm's financial information, financial history, and details of the existing business, is known as the

registration statement

The process of gathering stock price and quantity information from potential investors to estimate the IPO price of a stock is called the

roadshow

Any additional issue of stock by a company that is already publicly traded is called a

seasoned offering

In firm commitment underwriting, the underwriters receive payment in the form of a _____ representing the difference between the price they pay the firm for the shares, and the price they charge investors for them.

spread

The difference between the price at which an underwriter sells the shares and the price paid by the underwriter for those shares is known as the underwriter's

spread

Underwriters are compensated for the risk of issuing an IPO in the form of a(n)

spread

The tendency for the stock price to decline at the time of issue may have nothing to do with increased___(demand/supply); it is more likely resulting from well-informed managers believing the market ___ (overpriced/underpriced) the stock

supply, overpriced

The group of underwriters that is assembled to sell a very large issue of stock is referred to as a

syndicate

Which of the following are three of the banks that dominate the underwriting industry in the United States?

- Bank of America - Merrill Lynch - Goldman Sachs - Morgan Stanley

The issue costs are higher for equity than for debt securities for which of the following reasons?

- Extra administrative costs are higher for equity. - Underwriters demand extra compensation for bearing greater risk.

The two rules of success in venture capital management are

- be willing to take a big risk, but only for a potential big reward - identify losers early and cut your losses

Early sources of capital for a start-up company?

- founders' personal savings - bank loans to founders - reinvested earnings - funds invested by friends and family

What are some characteristics of a venture capital firm?

- professional management money - pool of money - makes equity investments in start-ups

Providers of venture capital are

- specialist venture capital firms - wealthy individuals - pension funds - mature corporations looking for new technology

Statistically, the number of firms that provide venture capitalists with the large payoff they require is approximately

1/10

An equity issue that makes a privately owned firm public is called a(n)

IPO

Which of the following statements describes a seasoned offering?

It is the sale of additional securities by a firm that is already publicly traded.

Which of the following statements best describes shelf registration?

The provision that allows large companies to file a single registration statement covering financing plans for up to 3 years.

True or false: Issue costs are higher for equity than for debt securities.

True

Equity investment in high-risk, high-tech start-up private companies is called

venture capital

Two of the methods that underwriters may use to estimate a stock's IPO price are the ___ method and examining the ___

discounted cash flow; price-earnings ratio of competitors

IPO underpricing is a cost to the ______ investors since ______ investors are allowed to buy shares at a favorable price.

existing, new

Start-ups often seek out funding from the managers themselves as well as

friends and family

Shelf registration is more often used for the

issue of corporate bonds

A private placement allows a firm to sell securities to

knowledgeable investors only

In the United States, underwriting of securities issues is dominated by

major investment banks

A firm that pools funds from a variety of investors and seeks out start-up companies to invest in is called a(n)

venture capital firm

The main motivation for a firm to undertake an IPO is that

they have grown to need more capital than individuals or venture capitalists can provide

True or false: The advantage of the bookbuilding method is that it allows underwriters to reward investors whose bids are most helpful in setting the issue price.

true

Underwriters who have agreed to firm commitment underwriting of an IPO would be more likely to ______ the issue than if they had agreed to best efforts underwriting.

underprice

A common IPO strategy employed by underwriters to tempt investors to buy the stock and to reduce the cost of marketing the issue to investors is

underpricing

The firm commitment method requires the investment bank to take on the risk of unsold securities and act as a(n)

underwriter