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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 1

Multiple Choice

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After owning a Maplewood Company bond for five years, Michelle exercised an option that allowed her to exchange her bond for 20 shares of the company stock. Michelle owned a

A) callable bond.
B) revenue bond.
C) junk bond.
D) convertible bond.

E) All of the above
F) A) and D)

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Question 2

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The U.S. government just announced an increase in the interest rate paid on U.S. government bonds. This will likely cause a decrease in the interest rates paid on corporate bonds.

A) True
B) False

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Question 3

Multiple Choice

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The disadvantages of issuing stock to obtain long-term financing include

Investors who trade securities buy securities they are interested in holding or sell securities to make a profit or cut losses by trading in the secondary market.

A recent publication referred to a series of bonds as "the 6s of 35." What does this mean?

Abraham found a $1,000 face value bond that belonged to his father. He checked The Wall Street Journal and found the bond was currently selling for $1,220. This bond sells at a

Tee Time Golf Resort found that Jordan Spieth wants to put his name on golf course designs. However, for any course to be acceptable, it will cost at least $20 million to build. The plan is to purchase real estate for four new golf resorts. Proceeding with their venture, the owners have calculated that they will need approximately $100 million. But putting together an IPO is another matter. After meeting with their investment banker, they believe that investors will be willing to pay $22/share for the IPO. As the ________ for this issue, the investment bank requires 3% of the revenues generated by the sale. Tee Time will need to issue ________ shares in order to have the $100 million they need to proceed with their plan.

Bonds sold at a discount are sold for more than the bond's face value.

A corporate bond provides the owner with the right to sell the bond to other investors at any time during the life of the bond.

Matthew recently invested in 15-year Bathtub Brewing Company bonds paying 8% interest annually, with a maturity date of 2035. The bonds are callable in 2030. If interest rates go down to 5.5% in the year 2030, the brewery is likely to

Securities markets help companies raise long-term debt and equity financing.

In the language of bonds, the terms "principal" and "face value" are synonymous.

Insider trading involves the sale of stock to employees at discounted prices.

Buying stock on margin allows investors to increase the potential rate of return made on a stock investment.

Corporations receive the proceeds for the sale of their stock in

A stock split immediately increases the value of an investor's holdings.

Trading in newly issued securities takes place in the

Corporations benefit from securities markets primarily by

Exchange traded funds (ETFs) are like mutual funds because these funds permit the investor to buy shares of a collection of several stocks or shares of a collection of stocks and bonds, but, unlike mutual funds, they are traded during the day on the exchanges.

Which of the following measures how quickly an investor has access to his/her invested funds, if they are needed?