Unit 20 Checkpoint Exam

There are four basic elements qualifying a bond issue for coverage under the Trust Indenture Act of 1939. Those are as follows:

It is a corporate issue, The issue size is more than $50 million within 12 months. The maturity is 9 months or more. It is offered interstate.

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) If the offering is limited to accredited investors, advertising is permitted. B) If the offering is limited to no more than 35 nonaccredited investors, advertising is permitted. C) Under Rule 506(c), a prospectus is only required for nonaccredited investors. D) Private placements under Regulation D cannot be publicly advertised.

A) If the offering is limited to accredited investors, advertising is permitted. Rule 506(c) of Regulation D differs from Rule 506(b) in that all of the investors must be accredited. In that case, advertising is permitted. It is Rule 506(b) that permits the exemption if no more than 35 of the investors are nonaccredited, but advertising would not be permitted. If the sale is exclusively to accredited investors, the private placement may advertise.

the largest portion of the spread is the

Concession

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 both a size limit and a time limit. C) meeting a size limit, but not a time limit. D) meeting a time limit, but not a size limit.

C) meeting a size limit, but not a time limit. She bought on the secondary market so there's no time limit

When an existing, long established publicly traded corporation issues a large block of new shares in order to expand or modernize, it is A) a primary distribution. B) an IPO. C) a secondary distribution. D) a refunding.

primary offering New shares are always part of a primary distribution. When it is the first time, it is an initial public offering (IPO). That does not apply here because this company already has shares publicly trading.

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

Firm commitment The firm commitment is the most commonly used type of underwriting contract. Under its terms the underwriter commits to buy the securities from the issuer, and as such is acting in a dealer capacity.

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

Rule 144 Rule 144 does not pertain to primary offerings; it affects secondary market transactions in restricted or control securities.

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) Neither are required to be in the prospectus of a mutual fund. D) A statement of additional information need not be included in the prospectus of a management company.

D) A statement of additional information need not be included in the prospectus of a management company. sai doesn't need to be there. but SEC maindates a summary section for MF prospectus

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 general obligation (GO) index. B) the revenue bond index. C) the visible supply. D) the acceptance or placement ratio.

the acceptance or placement ratio The placement ratio, also known as the acceptance ratio, is compiled weekly and reflects the municipal bonds sold divided by the municipal bonds offered in the previous week.

Under SEC Rule 134, a tombstone advertisement includes all of the following except A) the public offering price. B) the net proceeds to the issuer. C) the names of the syndicate members. D) the number of shares to be sold.

B) the net proceeds to the issuer.

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

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

Congress passed the Trust Indenture Act of 1939 to protect bondholders. It requires that issuers of eligible bonds appoint a trustee to ensure that promises (covenants) between the issuer and the trustee who acts solely for the benefit of the bondholders are carried out. The Trust Indenture Act of 1939 applies to which of the following issues offered on an interstate basis? A) A corporate bond in the amount of $38 million with a maturity of 10 years B) A municipal general obligation bond in the amount of $200 million with a maturity of 20 years C) A corporate bond in the amount of $500 million with a maturity of 8 months D) A corporate bond in the amount of $200 million with a maturity of 20 years

D) A corporate bond in the amount of $200 million with a maturity of 20 years

Which of the following statements about the underwriting manager of a syndicate is true? A) Syndicate managers are exempt from FINRA membership. B) The other syndicate members elect the manager. C) There is a unitary syndicate manager. D) An underwriting syndicate may have more than one manager.

D) An underwriting syndicate may have more than one manager. Usu. the case with large issues

Which of the following statements regarding the differences between Rule 506(b) and Rule 506(c) of Regulation D of the Securities Act of 1933 are true? I) Rule 506(c) offerings can be advertised, while Rule 506(b) offerings cannot. II) Rule 506(c) offerings are limited to 35 nonaccredited investors, while Rule 506(b) offerings do not have a limit. III) The bad actor provisions only apply to Rule 506(c) offerings. IV) Rule 506(c) offerings are limited exclusively to accredited investors, while nonaccredited investors can participate in Rule 506(b) offerings.

D) I and IV

Which of the following would be found in the agreement among underwriters for a municipal bond offering? I) Legal opinion II) Amount of the concession III) Appointment of the bond counsel IV) Establishment of the takedown

I and IV

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) $3,750. B) $2,500. C) $6,250. D) $7,500.

a) 3750 (3/4 * 500bonds) = 3750 When a member of the syndicate sells a bond it is entitled to the total takedown—in this case, ¾ of a point ($7.50) per bond. The computation is 500 bonds sold × $7.50 per bond = $3,750 underwriting profit. Remember that the concession would only go to those who are not members of the syndicate but are part of the selling group instead. Did you notice how much extraneous information is in this question?

syndicate letter is also called

agreement among underwriters, syndicate agreement, syndicate account letter, or account summary report) is the document that forms the syndicate and spells out each member's rights and obligations.

Which of the following would be found in the agreement among underwriters for a municipal bond offering? Legal opinion Amount of the concession Appointment of the bond counsel Establishment of the takedown

legal opinion

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

municipal bond mutual funds While municipal bonds are an exempt security, bond mutual funds are not; they are investment company securities, which must be registered with the SEC prior to public sale.

Either municipal revenue or general obligation (GO) bonds can be underwritten using a

negotiated underwriting process to set the terms of the new issue.

If the registration is just with one state, the registration will be done through

qualification. Qualification means that the state will collect all the information and decide whether or not to clear the offering for sale in the state.

Which of the following is the largest component of a municipal underwriting spread? A) Total takedown B) Management fee C) Additional takedown D) Concession

total takedown The underwriting spread is the entire amount. Total takedown is made up of the additional takedown and the concession, which makes it the largest component. The management fee is the smallest.