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1. Underwriting is one of the services provided by _____.
2. Under firm-commitment underwriting, the ______ assumes the full risk that the shares
cannot be sold to the public at the stipulated offering price.
3. Explicit costs of an IPO tend to be around ______ of the funds raised.
4. Barnegat Light sold 200,000 shares in an initial public offering. The underwriter's explicit
fees were $90,000. The offering price for the shares was $35, but immediately upon issue, the
share price jumped to $43. What is the best estimate of the total cost to Barnegat Light of the
equity issue?
5. A red herring becomes a prospectus when ____.
6. Private placements can be advantageous, compared to public issue, because:
I. Private placements are cheaper to market than public issues.
II. Private placements may still be sold to the general public under SEC Rule 144A.
III. Privately placed securities trade on secondary markets.
7. A level _____ subscriber to the NASDAQ system may enter bid and ask prices.
8. Which one of the following statements about IPOs is
not
true?
9. The margin requirement on a stock purchase is 25%. You fully use the margin allowed to
purchase 100 shares of MSFT at $25. If the price drops to $22, what is your percentage loss?
10. The NYSE acquired the ECN _______, and NASDAQ recently acquired the ECN ________.
11. Rank the following types of markets from least integrated and organized to most
integrated and organized:
I. Brokered markets
II. Continuous auction markets
III. Dealer markets
IV. Direct search markets
12. As a result of flash crashes, the SEC is trying circuit breakers that will halt trading for 5
minutes if large stocks' prices change by more than _____ in a 5-minute period.
13. Which one of the following is
not
an example of a brokered market?
14. More than ______ of all trading is believed to be initiated by computer algorithms.
15. Purchases of new issues of stock take place _________.
16. Initial margin requirements on stocks are set by _________.
17. Which one of the following types of markets requires the greatest level of trading activity
to be cost-effective?
18. Which one of the following is a
false
statement regarding NYSE specialists?
19. Restrictions on trading involving insider information apply to:
I. Corporate officers and directors
II. Major stockholders
III. Relatives of corporate directors and officers
20. An order to buy or sell a security at the current price is a ______________.
21. The term
inside
quotes
refers to _____.
22. The term
latency
refers to _____.
23. If an investor places a _________ order, the stock will be sold if its price falls to the
stipulated level. If an investor places a __________ order, the stock will be bought if its price rises
above the stipulated level.
24. On a given day a stock dealer maintains a bid price of $1,000.50 for a bond and an ask
price of $1003.25. The dealer made 10 trades that totaled 500 bonds traded that day. What was
the dealer's gross trading profit for this security?
25. Advantages of ECNs over traditional markets include all but which one of the following?
26. The __________ was established to protect investors from losses if their brokerage firms
fail.
27. When matching orders from the public, a specialist is required to use the _______.
28. The process of polling potential investors regarding their interest in a forthcoming initial
public offering (IPO) is called ________.
29. The bulk of most initial public offerings (IPOs) of equity securities goes to ___________.
30. Initial public offerings (IPOs) are usually ___________ relative to the levels at which their
prices stabilize after they begin trading in the secondary market.
31. According to multiple studies by Ritter, initial public offerings tend to exhibit __________
performance initially and __________ performance over the long term.
32. Specialists try to maintain a narrow bid-ask spread because:
I. If the spread is too large, they will not participate in as many trades, losing commission income.
II. The exchange requires specialists to maintain price continuity.
III. Specialists are nonprofit entities designed to facilitate market transactions rather than make a
profit.
33. In a __________ underwriting arrangement, the underwriter assumes the full risk that
shares may not be sold to the public at the stipulated offering price.
34. The ______________ is the most important dealer market in the United States, and the
______________ is the most important auction market.
35. The inside quotes on a limit order book can be found ______.
36. The __________ system enables exchange members to send orders directly to a specialist
over computer lines.
37. The fully automated trade-execution system installed on the NYSE is called _____.
38. The NYSE Hybrid Market allows _____.
39. Approximately __________ of trades involving shares issued by firms listed on the New
York Stock Exchange actually take place on the New York Stock Exchange.
