1) Among several other roles, as a middleman, the investment banker is responsible for
designing and packaging a security offering and selling it to the public.
2) The premium for a warrant would increase if its underlying common stock has a
negative market outlook.
3) When the market price of a common stock rises above the conversion price, the
convertible should always be converted immediately before it drops.
4) The primary purpose of the cash budget is to forecast income.
5) Profitability ratios are distorted by inflation because profits are stated in current
dollars and assets and equity are stated in historical dollars.
6) The discount rate depends on the market’s perceived level of risk associated with an
individual security.
7) One potential advantage of a merger to the acquiring firm is the “portfolio effect,”
which attempts to achieve risk reduction while perhaps maintaining the rate of return
for the firm.
8) The cost of capital generally varies inversely with the size of the capital structure.
9) The commercial paper market is available to all New York Stock Exchange
companies.
10) Shelf registration primarily gives large, strong companies flexibility in the timing of
debt or equity issues.
11) Brokers actually own the securities they buy and sell on the floor of the exchange.
12) In order to conduct a cash break-even analysis, the analyst must add back
depreciation from fixed costs.
13) A tax loss on the sale of a depreciable asset used in business or trade may be written
off against income.
14) The capital asset pricing model (CAPM) relates the risk-return tradeoffs of
individual assets to market returns.
15) Eurodollar loans are similar to U.S. bank loans in that they are usually short-to
intermediate-term in nature.