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Finance
Q:
Balanced funds generate higher proportion of income than growth and income funds and are less volatile.
Q:
YR Megan Chaze, an investment banker, agrees to a firm commitment offering of 1.2 million shares of Formosan Tech stock. The offer price is set at $25.50 and the spread is 30 cents per share. If there are no other fees or expenses, the stock is actually sold to the public at $26.00. What is the amount of funds Formosan Tech receives?
Q:
Venture capitalists provide a unique service to developing businesses. Discuss their services and the organizational structures used by venture capital firms.
Q:
How might SEC Rule 144A enhance the liquidity and lower the financing costs in private placements?
Q:
What are the major services of a full-service investment banking/brokerage firm? What does each provide for financial investors and funds-seeking firms and governments?
Q:
Explain the differences between underwritten offers and best-effort arrangements for IPOs.
Q:
Name and discuss the important procedures involved in bringing a new security issue to market by an investment banking firm.
Q:
Discuss the intense competitive battle between commercial and investment banks for corporate client business. Why have investment banks and commercial banks sought to step into each other's business?
Q:
Which one of the following statements about venture capitalists is NOT correct?
a. Venture capitalists are aggressive investors
b. Venture capitalists contribute liability financing rather than invest in equity
c. Most private venture capitalists are organized as limited partnerships
d. The federal government licenses some private firms to provide lower cost funds to entrepreneurs
e. Angel venture capitalists are wealthy individuals who fund business startups.
Q:
Which one of the following securities firms' activities is generally the most risky?
a. Best efforts offering
b. Private placement
c. Program trading
d. Pure arbitrage
e. Firm commitment offering
Q:
Megan Stanlee, an investment bank, agrees to a best efforts offering of 2.5 million shares of Macrohard Computer stock. The offer price is set at $35 per share. There are no other fees or expenses. If the stock is actually sold to the public at $34.50 and the banker charges a 3.45 cent commission per share sold, what is the amount of funds that Macrohard Computer receives?
a. $88,750,000
b. $87,500,000
c. $86,163,750
d. $85,176,430
e. $84,122,560
Q:
Rehman Sisters, an investment bank, agrees to a firm commitment offering of 2 million shares of Pear Computer stock. The offer price is set at $55 and the spread is 50 cents per share. If the stock is actually sold to the public at $53.80 however, what is Rehman Sisters' gain or loss?
a. $1,400,000 gain
b. $1,400,000 loss
c. $500,000 gain
d. $500,000 loss
e. $1,000,000 loss
Q:
Venture capital firms provide _______ financing to be used for product development and initial marketing and _______ financing to initiate manufacturing and sales.
a. start-up; first-stage
b. seed; start-up
c. seed; first-stage
d. first-stage; start-up
e. first-stage; second-stage
Q:
Which of the following is not a form of a venture capital firm?
a. a private fund
b. a corporate subsidiary
c. a publicly funded small business investment corporation
d. a trust department of a commercial bank
Q:
Mezzanine or bridge financing is provided by a venture capital firm to finance
a. seasonal inventory needs.
b. long-term capital needs.
c. before the IPO.
d. research and development.
Q:
A venture capitalist provides seed financing
a. at the "idea" stage of a new business
b. at the product development stage.
c. at the time of the IPO.
d. in the year prior to the public offering.
Q:
Which of the following is NOT a source of funds for security brokers and dealers?
a. customer credit balances
b. federal funds sold
c. repurchase agreements
d. call loans from banks
e. All of the above are sources of funds for security brokers and dealers.
Q:
Which of the following is true about abest-efforts offering?
a. The investment bank is compensated based on the number of securities sold.
b. The risk of the securities not selling or not selling at a desired price is borne by the issuing firm, not the investment bank.
c. Typically, the smaller and more risky issuers are forced to use this type of offering.
d. All of the above is true.
Q:
In an underwritten offer, the risk is borne by
a. an investment banker
b. an issuer
c. investors
d. a selling group
e. a dealer
Q:
It is called an underwritten offer if
a. the risk of selling the issue at a price higher than that promised to the issuer is borne by the investment bank.
b. the difference between the price at which the issue is sold and that promised to the issuer represents the underwriting spread or the profit earned by the investment bank.
c. the investment bank guarantees the issuing firm a certain price.
d. both a and b
e. all of the above
Q:
Universal bankswere/are:
a. commercial banks operating in the U.S. prior to 1980.
b. financial institutions outside of the U.S. that can engage in deposit taking, making loans, brokerage activities, securities underwriting, and offering insurance services.
c. investment banks operating in the U.S. prior to 1980.
d. commercial banks that can also sell universal life insurance policies.
e. none of the above.
Q:
In an underwritten IPO, investment banks in the underwriting syndicate can sell shares
a. to institutional investors such as mutual funds
b. to retail investors
c. back to the issuer
d. both a and b
Q:
All but one of the following are merger-related services provided by investment bankers to acquiring firms:
a. Investment advice to target companies.
b. Identify merger target companies for the acquirer.
c. Analysis and pricing of the deal.
d. Merger negotiation assistance.
Q:
A(n) _________ is a "market-maker" in securities and trades on a bid/ask basis.
a. broker
b. arbitrager
c. dealer
d. investment banker
Q:
Investment bankers tend to reduce their risk of underwriting by
a. using futures contracts to hedge their price risk.
b. underpricing a new issue.
c. reducing the size of the selling group in the underwriting.
d. reducing the number of investment banking firms in the underwriting syndicate.
Q:
Which of the following is not a service provided by full-service brokerage firms?
a. execution of trades
b. storage of securities
c. making a market in the customers' securities
d. margin credit to customers
e. investment advice
Q:
The major source of funds for brokers and dealers is
a. customer accounts balances.
b. call loans from commercial banks.
c. their net worth.
d. loans from the SEC.
Q:
The Federal Reserve System has authority over what area of securities trading?
a. margin trading
b. insider trading
c. exchange market trading
d. registration of the issue
Q:
When an investment banker holds a security inventory to make market in a security it has just underwritten, it is performing the ________ function in the market.
a. registration
b. dealer
c. broker
d. advisory
Q:
The best example of an investment banker's effort to manage the inventory risk in a new security issue is
a. the formation of a selling group.
b. the formation of an underwriting syndicate.
c. allotting shares of the issue to participating brokers.
d. paying a high price to the issuing firm.
Q:
Venture capital investments are characterized by all of the following except
a. Substantial control over management decisions
b. Low-risk investments with low returns
c. A share of capital appreciation
d. Serves as intermediate financing between founders' capital and the IPO
Q:
Which of the following activities is not performed around the time of new debt security issue?
a. securing a credit rating from a rating service provider.
b. obtaining the security certificates printed by the Federal Reserve Banks.
c. selecting a transfer agent.
d. selecting a trustee.
Q:
The preliminary and final prospectus provided to prospective investors in a new security issue is a summary of the
a. registration statement filed with Federal Reserve.
b. public announcement of price and number of securities issued by the SEC.
c. registration statement filed with the SEC.
d. duties of the investment banker in the primary offering.
Q:
The optimum offering price of an underwritten security is called the market equilibrium price, which is
a. the highest price offered to the issuing firm.
b. the lowest price paid by the investment banker.
c. the highest price which allows the entire issue to be sold quickly at the offering price.
d. the price that will maximize the amount obtained by the investment banker.
Q:
If a company has never offered securities to the public, the investment banking will offer the securities in the primary market as
a. a seasoned offering.
b. a rights offering.
c. an IPO.
d. a private placement
e. a best efforts offering.
Q:
Which of the following laws is not associated with financial reform legislation in the wake of the Great Depression?
a. Securities Act
b. Securities Exchange Act
c. Glass-Steagall Act
d. Financial Services Modernization Act
Q:
The Glass-Steagall Act of 1933 separated
a. insurance from credit.
b. investment banking from mutual funds.
c. investment banking from commercial banking.
d. insurance from mutual funds.
Q:
Early investment banks, unlike commercial banks with limited "money-related" services and loans, could perform many financial services and were known as
a. private banks.
b. universal banks.
c. Jay Cooke banks.
d. industrial banks
e. money banks
Q:
Which of the following is not true about private placement?
a. The sale of securities directly to the ultimate investor and not through a public offering.
b. The underwriting function cannot be avoided.
c. A fee is earned for the origination/selling or uniting the supplier and user of funds.
d. A private placement may reduce the total flotation costs for a business.
e. It is used by both lesser-known firms and large, well-known firms in need of funds.
Q:
Which of the following is true about private placement?
a. The underwriting function is avoided.
b. The extremes of high credit quality firms and low or unknown credit quality firms use private placements.
c. The terms may be negotiated between the issuer and the investors.
d. The sale of securities must be restricted to a small group of accredited investors.
e. All of the above is true.
Q:
The adoption of SEC Rule 144A provided private placement borrowers
a. higher costs of financing because of increased regulation.
b. lower-cost financing because of the reduction in default risk provided by the regulation.
c. lower-cost financing because private placement investors can now trade private placement securities instead of holding them for a two-year period.
d. the right not to register their issues with SEC.
Q:
SEC Rule144A may lower the cost of private placement financing for corporations for it
a. places an interest rate ceiling on private placement financing.
b. permits trading in private placement securities after a two-year wait, enhancing the liquidity of the investment.
c. permits sophisticated institutional investors to invest in private placement securities.
d. permits the trading of private placement trading before the traditional two-year holding period, enhancing the liquidity of the investment.
Q:
All of the following are associated with the origination function of investment banking except
a. design of the security to fit the needs of the market and the issuing firms.
b. filing of the required registration statements.
c. obtain a credit rating on a debt issue.
d. commit to a specific price to the issuing firm and attempt to sell the security in the market.
Q:
_______ involves an issuer of securities soliciting offers from several investment bankers.
a. negotiated offering
b. underwritten offer
c. preliminary search
d. competitive bidding
e. initial underpricing
Q:
Even before the Financial Services Modernization Act was passed, commercial banks could
a. invest in common equities
b. underwrite U.S. government securities
c. underwrite corporate bond issues.
d. purchase any debt securities for their own account.
e. both b and c
Q:
Full-service brokerage service includes
a. origination, underwriting, and sales.
b. registration of securities, storage of securities, and execution of trades.
c. execution of trades, investment advice, and margin credit.
d. cash management service, private placements, and security distribution.
Q:
All of the following are the major services of investment banking firms except
a. making commercial loans
b. bringing new security issues to market
c. trading securities
d. brokerage
Q:
All of the following were the objectives of the Glass-Steagall Act except
a. discouraging speculation in financial markets.
b. limiting bank mergers when the merger might adversely affect competition.
c. preventing conflict of interest and self-dealing.
d. restoring confidence in the commercial banking system.
e. All of the above were the objectives of the Glass-Steagall Act.
Q:
One of the major causes of financial crisis is the subprime mortgage loans that are facilitated by investment banks.
Q:
Financial Services Modernization Act of 1999 is to limit investment banks to engage any commercial banking activities.
Q:
In 2008, Lehman Brothers filed bankruptcy and many investment banks receive the bailout funds from the Treasury. This means there is very limited career opportunities in investment banking.
Q:
Investment Banks provide services for the direct financing in markets such as collecting deposits and making business loans.
Q:
Universal banks are financial institutions that are allowed to do only commercial banking activities.
Q:
In an underwritten offer, the investment bank is compensated based on the number of securities sold.
Q:
In an underwritten offer, the risk of selling the issue at a price lower than that promised to the issuer is borne by the investment bank.
Q:
A best efforts sale of securities is likely to generate more revenue for the investment banker than an equivalent underwriting of securities.
Q:
Mezzanine or bridge financing is the interim financing before public offerings of securities.
Q:
SEC Rule 144A permitted borrowers in private placements the opportunity to trade their obligations.
Q:
Before the Financial Services Modernization Act of 1999, the Supreme Court (1988) of the U.S. provided commercial banks permission to underwrite commercial paper and municipal revenue bonds but not equities.
Q:
Under the Glass-Steagall Act commercial banks were permitted to underwrite and trade Federal government securities and general obligation bonds of states and municipalities.
Q:
Seed financing is the first stage of venture capital financing.
Q:
Venture capital recipients are often called angels.
Q:
Security brokers and dealers obtain most of their funds from customers and banks.
Q:
Venture capital firms compete with commercial banks for new business loans.
Q:
The 40% margin rule requires the buyer/seller of a security to provide at least 60% of the funds necessary to cover the transaction, borrowing 40%.
Q:
Investment banking firms provide both financing and investment services for borrowers and lenders, respectively.
Q:
The Banking Act of 1933, known as the Glass-Steagall Act, has effectively kept commercial banks out of the commercial lending area.
Q:
Venture capital financing usually entails some managerial involvement and equity ownership.
Q:
Discount brokers offer investment advice at prices below full-service security brokerage houses.
Q:
An underwriter's selling group assumes underwriter risk.
Q:
A dealer earns a commission for bringing buyers and sellers together.
Q:
A security underwriting takes place in the primary market; subsequent trading in the security takes place in the secondary market.
Q:
The Glass-Steagall Act of 1933 allowed firms engaged in investment banking to simultaneously engage in commercial banking.
Q:
The Glass-Steagall Act of 1933 has eliminated banks from any underwriting activities.
Q:
Investment banking operations occur in the direct financial market.
Q:
________ risk is the chance of loss, a one-tailed risk, while _________ risk, a two-tailed risk offers returns above and below an average?
a. speculative; pure
b. objective; pure
c. default risk; pure
d. pure; speculative
Q:
Insurance companies manage all but which financial risk?
a. default risk
b. interest rate risk
c. pure risk
d. liquidity risk
Q:
Which one of the following combinations of pension terms offers the greatest protection for the future retiree?
a. under funded, vested, uninsured
b. insured, fully funded, vested
c. unfunded, private, company managed
d. trustee managed, under funded, and vested
Q:
The major investment area of life insurance companies is , while casualty insurance companies hold more of their investments in .
a. corporate stock; corporate stock
b. corporate stock; government securities
c. corporate bonds; municipal bonds
d. mortgages, municipal bonds
Q:
Which one of the following statements about universal life insurance is not true?
a. Cash contributions, net of term premiums, are invested at market rates.
b. The policyholder may vary the level of insurance coverage.
c. The policy does not qualify for the special federal tax exclusion of income built up inside the contract.
d. The amount of policyholder contribution each year is the difference between the contributions and the price of a one-year term policy.