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True / False
1. A security is a written instrument that provides evidence of a debt or equity ownership.
a. True
b. False
2. The sale of securities is the primary source of corporate finance.
a. True
b. False
3. Debt and equity both provide sources of funds for a company.
a. True
b. False
4. Stocks and bonds are the most commonly known form of securities.
a. True
b. False
5. Equity instruments, like stock, specify the amount of money, the time period it is to be held, and the rate of return to
be paid.
a. True
b. False
6. A debt instrument will typically specify the rate of interest charged to the sum borrowed.
a. True
b. False
7. Debt financing bonds may be issued by governments not by private companies.
a. True
b. False
8. Debt instruments, such as bonds, may not be sold for a commission.
a. True
b. False
9. Stockholders have a claim on future profits of a company.
a. True
b. False
10. Shares of stock in a company usually include ownership rights.
a. True
b. False
11. A share of stock is, in part, a claim on a share of most recent year's profits of a company.
a. True
b. False
12. A company has no legal liability to repay shareholders the amount they have invested.
a. True
b. False
13. Officers of a company have a duty to use "reasonable efforts" to make a profit for shareholders, but are rarely
liable for losses suffered during their leadership.
a. True
b. False
14. The term blue sky laws is attributed to a court opinion describing the purpose of state securities laws as working to
prevent the "speculative schemes which would have no more basis than so many feet of blue sky."
a. True
b. False
15. If an investment is legally classified as a security, then the security issuer may choose to follow either state
securities law or federal securities law.
a. True
b. False
16. Stocks must comply with federal securities laws only. Bonds must comply with state securities laws only.
a. True
b. False
17. The 1933 Securities Act primarily concerns issuing of new securities, not the regulation of existing securities.
a. True
b. False
18. The 1933 Securities Act is supposed to prevent fraud and misrepresentation in the sale of new securities.
a. True
b. False
19. The Securities and Exchange Commission is responsible for enforcement and administration of federal securities
law.
a. True
b. False
20. The Federal Trade Commission is responsible for enforcement and administration of federal securities law.
a. True
b. False
21. The term "security" has a legal meaning that includes only stock, bonds and debentures.
a. True
b. False
22. The term "security" is defined to include a wide range of investment devices.
a. True
b. False
23. Despite the detailed listing of security instruments in the 1933 Securities Act, the Supreme Court has also given a
broad definition to what is covered by the Act.
a. True
b. False
24. SEC v. Howey provides the major definition for determining what investments will be deemed to be securities
subject to securities law.
a. True
b. False
25. The Supreme Court's Howey test holds that a security is an investment of money in a common enterprise where
others work to earn profits for investors.
a. True
b. False
26. In SEC v. Howey, the Supreme Court announced that securities covered by the federal securities laws are all listed
in the Securities Act of 1933.
a. True
b. False
27. An investment in a common enterprise subject to the securities law includes those where each investor owns a
specific part of the organization being financed, such as a construction partnership.
a. True
b. False
28. In order to meet the requirements of the Howey test, an investor must not have direct control over the work that
makes the investment a success or failure.
a. True
b. False
29. A security involves the pooling of money by a group of people; it cannot be an investment only by one person.
a. True
b. False
30. Securities do not include direct ownership in physical goods; they are an undivided interest in an asset.
a. True
b. False
31. An exempt security, like a government bond, is not subject to either the registration or disclosure requirements of
the federal statutes.
a. True
b. False
32. Securities issued by banks and charitable organizations are exempt from SEC registration and disclosure
requirements.
a. True
b. False
33. Insurance policies are exempt from SEC registration and disclosure requirements.
a. True
b. False
34. While securities issued by banks are exempt from SEC registration requirements, they are subject to the SEC's
anti-fraud and civil liability provisions.
a. True
b. False
35. New securities may be offered for sale on the Internet, but not many are sold that way exclusively.
a. True
b. False
36. Congress has passed a law to help securities offerings on the Internet not get caught up in state securities
regulations.
a. True
b. False
37. In Latta v. Rainey the investment scam was run by a major New York investment firm that convinced investors
to believe that the information provided must be true.
a. True
b. False
38. In Latta v. Rainey the victims of an investment scam were promised high rates of return for an investment that
looked to be solid.
a. True
b. False
39. In Latta v. Rainey the courts held that while the investment sold by Rainey was a money loser, he did not
engage in misrepresentation so could not be liable for losses.
a. True
b. False
40. The Securities Act of 1933 concerns truth in disclosure at the time securities are first sold; the 1934 Securities
Exchange Act concerns regulation of securities already in the market.
a. True
b. False
41. "Material information" in an SEC disclosure is defined to mean the management structure of an issuer of securities.
a. True
b. False
42. The SEC registration statement consists, legally, only of a complete prospectus which is given to investors in a
security.
a. True
b. False
43. The prospectus condenses the longer registration statement provided by security issuers to the SEC.
a. True
b. False
44. A prospectus must provide background information about the managerial experience and compensation packages of
the promoters of a security.
a. True
b. False
45. The preliminary version of a prospectus, called a "red herring," may not be released to the public until approved by
the SEC.
a. True
b. False
46. The SEC cannot rule on the merits of an offering, but can, by stop orders and other procedures, delay a proposed
security offering it thinks is bad.
a. True
b. False
47. If SEC examiners realize that a proposed securities offering is particularly foolish, they may stop the sale of the
securities because it fails the merit test.
a. True
b. False
48. SEC examiners of a proposed securities offering can issue a "deficiency letter" if they believe the information in a
prospectus is not complete. That can delay the sale of a security.
a. True
b. False
49. SEC examiners of a proposed securities offering can issue a "deficiency letter" if they believe the information in a
prospectus is not complete. However, if the issuer responds in a timely manner, the SEC cannot delay the sale.
a. True
b. False
50. The SEC may require that information be released about the high-risk factors of a proposed security offering.
a. True
b. False
51. The costs of registering a new security offering with the SEC and marketing the securities to the public usually runs
about $25,000.
a. True
b. False
52. The investment banker who markets a new security offering is called an underwriter.
a. True
b. False
53. Securities that are exempt from SEC registration are also exempt from securities laws.
a. True
b. False
54. The private placement exemption must be issued for all securities not sold on the public securities markets (such as
the New York Stock Exchange).
a. True
b. False
55. Suppose Google sells $1 billion in new bonds to Northwest Mutual Life. That sale of securities will probably not
have to be registered.
a. True
b. False
56. Accredited investors are those presumed sophisticated and wealthy enough to evaluate investment opportunities
without the benefit of an SEC-approved prospectus.
a. True
b. False
57. Accredited investors include institutions such as banks and insurance companies.
a. True
b. False
58. An individual who is classified as an accredited investor has a net worth of at least $1 million.
a. True
b. False
59. Even if the initial sale of securities is exempt from SEC registration, the securities are never exempt from the
securities law.
a. True
b. False
60. Private placement offerings are most common for large security issues sold to institutional investors.
a. True
b. False
61. Private placements under Rule 144A include large dollar security sales to big institutions.
a. True
b. False
