Chapter 10: Stock Offerings and Investor Monitoring
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54. Underwriters sell most or all of the shares of an IPO to institutional investors.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
55. The total cost of engaging in an IPO is usually about 1 percent of the total proceeds.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
56. Crowdfunding is a way that small businesses can raise funds from a number of investors over the Internet.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
57. In general, secondary offerings cause an immediate increase in the market price of the stock.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.10.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
Chapter 10: Stock Offerings and Investor Monitoring
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Page 18
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.08
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
62. Common law countries such as the United States, Canada, and the United Kingdom allow for more legal protections
for shareholders than civil law countries such as France or Italy.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.08
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
63. The government enforcement of securities laws varies among countries.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.08
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
64. All countries that have stock markets have similar laws regarding the financial information that must be provided by
public companies.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.08
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
65. Index-traded funds are passive funds that track a specific index.
Chapter 10: Stock Offerings and Investor Monitoring
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Page 19
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.08
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
66. A venture capital fund typically plans to exit from its original investment within about four to seven years.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
67. Venture capital funds typically take over businesses and manage them.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.01
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
68. Normally, only the owners of preferred stock are permitted to vote on certain key matters concerning the firm, such as
the election of the board of directors.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
69. If shareholders become dissatisfied with a firm’s performance, they may engage in a proxy contest in an attempt to
Chapter 10: Stock Offerings and Investor Monitoring
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Page 20
change the composition of the board of directors.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
70. Initial public offerings (IPOs) tend to occur more frequently during bullish stock markets.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
71. According to financial research, there is evidence that the stock price associated with an IPO typically rises on the first
day but then declines over time.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
72. Shelf-registration allows firms quick access to funds without repeatedly being slowed by the registration process.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
Chapter 10: Stock Offerings and Investor Monitoring
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Page 21
73. In addition to the Nasdaq market, the OTC market has another segment known as “pink sheets,” where smaller stocks
are traded.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
74. The Dow Jones Industrial Average (DJIA) is a value-weighted average of stock prices of 30 large U.S. firms.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
75. Research studies have found that the share prices of target firms and of acquiring firms react very positively to
announcements of an acquisition.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
76. If managers believe that their firm’s stock price is weak because it is undervalued by the market, they may consider
repurchasing a portion of the shares that are outstanding.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.10.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
Chapter 10: Stock Offerings and Investor Monitoring
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Page 23
a.
election of the board of directors.
b.
authorization to issue new shares of common stock.
c.
approval of amendments to the corporate charter.
d.
adoption of bylaws.
e.
all of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.10.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
81. Which of the following is not true with respect to preferred stock?
a.
Preferred stock usually does not allow for significant voting rights.
b.
If the firm does not have sufficient earnings from which to pay the preferred stock dividends, the preferred
shareholders may force the firm into bankruptcy.
c.
Normally, the owners of preferred stock do not participate in the profits of the firm beyond the stated fixed
annual dividend.
d.
Payment of preferred dividends is not a tax-deductible expense.
e.
All of the above are true.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.10.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
82. Which of the following is false with respect to initial public offerings (IPOs)?
a.
IPOs are first-time offerings of shares by a specific firm to the public.
b.
Normally, a firm planning an IPO will hire a securities firm to recommend the amount of stock to issue and
the asking price for the stock.
c.
Owners of firms that engage in IPOs are normally required to retain their shares for at least three years before
selling them in the secondary market.
d.
IPOs are typically intended to raise funds so the corporation can expand.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.10.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
83. To discourage flipping, some securities firms make ____ shares of future IPOs available to institutional investors that
Chapter 10: Stock Offerings and Investor Monitoring
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Page 24
retain shares for a ____ period of time.
a.
fewer; long
b.
more; short
c.
more; long
d.
Answers A and B are correct.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
84. Google’s IPO used a _________ auction process, which enabled it to attract a diversified investor base including
many individual investors.
a.
Dutch
b.
venture
c.
laddered
d.
leveraged
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
85. Firms are more willing to issue new stock in a secondary stock offering when the market price of their outstanding
shares is relatively
a.
high.
b.
low.
c.
either high or low, depending on the overall market.
d.
none of the above
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
86. “Pink sheets” are traded on the
a.
New York Stock Exchange.
b.
American Stock Exchange.
c.
over-the-counter market.
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Page 25
d.
Nasdaq market.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.05
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
87. Which of the following is not true regarding overallotment options?
a.
Overallotment options are rarely used in IPOs today.
b.
An overallotment option allows the lead underwriter to allocate an additional 15 percent of the shares of a firm
engaging in an IPO.
c.
The option allows the lead underwriter to purchase additional shares at the offer price.
d.
The lead underwriter may use the shares from an overallotment option to help stabilize the stock price in the
days after the IPO.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.10.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
88. In preparing for an IPO, a prospectus must be filed with the
a.
stock market where the firm will be listed.
b.
Securities and Exchange Commission.
c.
Consumer Financial Protection Bureau.
d.
Federal Trade Commission.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.06
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
89. Which of the following is not a barrier to corporate control?
a.
antitakeover amendments
b.
proxy contests
c.
poison pills
d.
golden parachutes
e.
All of the above are barriers to corporate control.
ANSWER:
b
Chapter 10: Stock Offerings and Investor Monitoring
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b.
has an incentive to use its stock as currency to acquire the shares of a target firm.
c.
is likely to be a candidate for a leveraged buyout.
d.
is likely to repurchase some of its shares.
ANSWER:
b
POINTS:
1
DIFFICULTY:
Moderate
LEARNING OBJECTIVES:
FMAI.MADU.15.10.07
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
94. Most individual investors attend road shows of firms that are about to go public before they purchase shares at the
time of an IPO.
a.
True
b.
False
ANSWER:
b
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.03
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
95. When a corporation makes a secondary offering, it may direct sales of the stock to its existing shareholders by giving
them:
a.
preemptive rights.
b.
limit orders.
c.
subscription rights.
d.
presumptive rights.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.04
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Knowledge
96. When a firm goes public and issues stock in the primary market,
a.
the equity investment in the firm declines.
b.
the firm’s debt level increases.
c.
the number of the firm’s owners increases.
d.
A and C
ANSWER:
c
POINTS:
1
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Page 28
97. The investment by a private equity fund in a business is normally much larger than the typical investment by a venture
capital fund.
a.
True
b.
False
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
KEYWORDS:
Bloom’s: Knowledge
98. Private equity funds tend to use mostly _________ when acquiring stakes in businesses.
a.
their equity from issuing common stock
b.
their equity from retaining earnings
c.
their equity from issuing preferred stock
d.
borrowed funds
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
KEYWORDS:
Bloom’s: Knowledge
99. Private equity funds commonly exit their investment in a business by
a.
selling their stake to another company.
b.
engaging in a credit default swap with the business.
c.
investing in shares of the business when the business engages in an IPO.
d.
repurchasing shares of their own stock in the secondary market.
ANSWER:
a
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
KEYWORDS:
Bloom’s: Knowledge
100. Venture capital funds commonly exit their investment in a business by
a.
receiving dividends from the business .
b.
engaging in a credit default swap with the business.
c.
selling shares of the business when the business engages in an IPO.
d.
repurchasing shares of their own stock in the secondary market.
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
LEARNING OBJECTIVES:
FMAI.MADU.15.10.02
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:
United States – OH – DISC.FMAI.MADU.15.02
KEYWORDS:
Bloom’s: Comprehension
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101. The phrase “__________” implies that the company engaged in an IPO could have received a larger amount of funds
had the offer price been set at a higher level.
a.
synchronizing the order
b.
covering the spread
c.
offsetting the flow
d.
leaving money on the table
ANSWER:
d
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
KEYWORDS:
Bloom’s: Knowledge
102. For many IPOs, the lead underwriter has a(an) _______ option, which allows it to allocate an additional 15 percent of
the firm’s shares for a period of up to 30 days after the IPO.
a.
credit default
b.
quantitative
c.
overallotment
d.
lockup
ANSWER:
c
POINTS:
1
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
KEYWORDS:
Bloom’s: Knowledge
DIFFICULTY:
Easy
NATIONAL STANDARDS:
United States – BUSPROG.FMAI.MADU.15.03
KEYWORDS:
Bloom’s: Knowledge