Fundamentals of Investments 8th Edition by Bradford Jordan -Test Bank

Fundamentals of Investments 8th Edition by Bradford Jordan -Test Bank

 

Instant Download – Complete Test Bank With Answers

 

 

Sample Questions Are Posted Below

 

Fundamentals of Investments, 8e (Jordan)

Chapter 5   The Stock Market

 

1) Bright Detergent is issuing new shares of stock which will trade on NASDAQ. If Sally purchases 300 of these shares, the trade will occur in which one of the following markets?

1. A) primary
2. B) secondary
3. C) third
4. D) fourth
5. E) over-the-counter

 

Answer:  A

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Primary and secondary markets

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

2) Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?

1. A) primary
2. B) secondary
3. C) third
4. D) fourth
5. E) fifth

 

Answer:  B

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Primary and secondary markets

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

3) Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n):

1. A) open-end sale.
2. B) break-out issue.
3. C) public service offering.
4. D) initial public offering.
5. E) initial trial issue.

 

Answer:  D

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Public offerings

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

4) A firm that specializes in arranging financing for companies is called a(n):

1. A) floor broker.
2. B) investment banking firm.
3. C) investment dealer.
4. D) private broker.
5. E) marketing firm.

 

Answer:  B

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Public offerings

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

5) The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called:

1. A) underwriting.
2. B) capitalizing.
3. C) securing.
4. D) brokering.
5. E) deploying.

 

Answer:  A

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Basics of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

6) The financing provided for new ventures that are frequently high-risk investments is referred to as “venture ________”.

1. A) capital
2. B) leverage
3. C) risk funds
4. D) funding
5. E) investing

 

Answer:  A

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Private equity

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

7) Main Supplies is a publicly-traded firm with 250,000 shares of stock outstanding. If the firm issues an additional 10,000 shares, those shares will be referred to as a(n):

1. A) supplemental offering.
2. B) seasoned equity offering.
3. C) initial public offer.
4. D) market expansion offer.
5. E) after-market underwriting.

 

Answer:  B

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Public offerings

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

8) Under the provisions of a general cash offer, shares of stock are offered to:

1. A) underwriters on a guaranteed sale basis only.
2. B) current shareholders prior to being offered to the general public.
3. C) institutional investors only.
4. D) the issuer’s employees on a cash purchase basis only.
5. E) the general public on a “first-come” basis.

 

Answer:  E

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Public offerings

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

9) A public offering of securities which are offered first to current shareholders is called a(n):

1. A) existing shareholder offer.
2. B) limited offer.
3. C) rights offer.
4. D) venture offer.
5. E) preference offer.

 

Answer:  C

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Public offerings

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

10) The difference between the price an underwriter pays an issuer and the underwriter’s offering price is called the:

1. A) spread.
2. B) margin.
3. C) offer differential.
4. D) firm commitment.
5. E) underwriting capital.

 

Answer:  A

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Costs of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

11) When a group of underwriters jointly work together to sell a new issue of securities, the underwriters form a(n):

1. A) underwriting cartel.
2. B) market union.
3. C) venture capital association.
4. D) Dutch market.
5. E) syndicate.

 

Answer:  E

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Basics of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

12) When an underwriting syndicate purchases an entire issue of new securities and accepts the risk of unsold shares, the underwriting is known as a ________ underwriting.

1. A) Dutch auction
2. B) full-fledge
3. C) firm commitment
4. D) best efforts
5. E) guaranteed sale

 

Answer:  C

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Basics of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

13) When the issuer assumes the risk for any shares the underwriters cannot sell, the underwriting is known as a ________ underwriting.

1. A) Dutch auction
2. B) partial
3. C) firm commitment
4. D) best efforts
5. E) pro-rata

 

Answer:  D

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Basics of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

14) When the price of newly issued shares is determined by competitive bidding the underwriting is known as a ________ underwriting.

1. A) Dutch auction
2. B) market-priced
3. C) seasoned
4. D) best efforts
5. E) rights

 

Answer:  A

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Basics of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

15) Which one of the following is the federal agency which regulates the financial markets in the U.S.?

1. A) Treasury Department
2. B) National Association of Securities Dealers
3. C) Over the Counter Commission
4. D) Federal Reserve
5. E) Securities and Exchange Commission

 

Answer:  E

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Financial market regulation and protections

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

16) The document that must be prepared in order to receive approval for a stock offering is called a:

1. A) tombstone.
2. B) prospectus.
3. C) offering agreement.
4. D) regulatory report.
5. E) offering paper.

 

Answer:  B

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Basics of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

17) A preliminary document provided to investors who are interested in a stock offering is called a(n):

1. A) prospectus.
2. B) inquiry form.
3. C) draft offer.
4. D) green shoe.
5. E) red herring.

 

Answer:  E

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Basics of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

18) A securities dealer is a(n):

1. A) intermediary who arranges trades between a buyer and a seller.
2. B) trader who buys and sells from his or her inventory.
3. C) firm which charges a commission for arranging a transaction.
4. D) person who buys securities for his or her own account on an exchange floor.
5. E) trader who transacts business on behalf of a securities issuer.

 

Answer:  B

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Stock exchanges and markets

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

19) Which one of the following best describes a broker?

1. A) intermediary who arranges trades between a buyer and a seller
2. B) trader who buys and sells from his or her inventory
3. C) firm which charges a commission for arranging a transaction
4. D) person who buys securities for his or her own account on an exchange floor
5. E) trader who transacts business on behalf of a securities issuer

 

Answer:  A

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Stock exchanges and markets

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

20) Which one of the following prices will an individual investor receive if he or she sells shares of Intel?

1. A) bid
2. B) ask
3. C) issue
4. D) offer
5. E) Dutch

 

Answer:  A

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Stock market prices and reporting

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

21) Which one of the following prices will an investor pay to purchase shares of stock that are currently outstanding?

1. A) issue
2. B) option
3. C) bid
4. D) ask
5. E) primary

 

Answer:  D

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Stock market prices and reporting

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

22) The profit a dealer makes on a purchase and resale of shares of stock is called the:

1. A) margin.
2. B) bid.
3. C) float.
4. D) offer.
5. E) spread.

 

Answer:  E

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Costs of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

23) A private equity fund:

 

1. is set up as a limited partnership
2. usually uses a 2/20 fee structure

III. place no constraints on manager compensation

1. typically have a stated life of 7 to 10 years

 

1. A) I and II only
2. B) I and III only
3. C) I, II and III only
4. D) I, II and IV only
5. E) I, II, III, and IV

 

Answer:  D

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Private equity

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

24) Which of the following is correct regarding the compensation paid to private equity fund managers?

1. A) Managers typically receive 20 percent of fund profits but no separate management fee.
2. B) Managers typically receive a high percentage management fee but no portion of fund profits.
3. C) Management compensation is usually subject to a “clawback” provision to limit the performance fees.
4. D) “Carried interest” refers to the interest fund managers earn on performance fees.
5. E) Fees paid to fund managers do not reduce the net return of the fund.

 

Answer:  C

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Private equity

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

25) An owner of a trading license on the NYSE is called a:

1. A) broker.
2. B) shareholder.
3. C) member.
4. D) trader.
5. E) dealer.

 

Answer:  C

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

26) An NYSE Supplemental Liquidity Provider:

 

1. can trade the same stocks as designated market makers
2. can trade only from offices outside the exchange

III. must quote bid or ask quotes a certain percent of the day

1. is paid 30 cents per 100 shares traded
2. A) I and II only
3. B) I, II and III only
4. C) I and III only
5. D) I, II, and IV only
6. E) I, II, III and IV

 

Answer:  B

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

27) The party who serves as a dealer for a few securities on an exchange floor and is obligated to maintain an orderly market for those securities is called a:

1. A) floor trader.
2. B) designated market maker.
3. C) floor broker.
4. D) member.
5. E) house broker.

 

Answer:  B

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

28) A trading floor broker:

1. A) is a NYSE member who trades on the floor for his or her personal account.
2. B) executes orders on behalf of commission brokers in exchange for a fee.
3. C) executes customers’ orders in exchange for a commission.
4. D) trades a limited number of securities and is obligated to maintain an orderly market for those securities.
5. E) is any party who owns a NYSE trading license.

 

Answer:  B

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

29) The NYSE’s Super Display Book is an electronic system which:

1. A) maintains the historical records of each customer’s trading activity.
2. B) transmits the latest market information to the news media.
3. C) allows floor traders to execute trades via cell phones.
4. D) tracks the activity on an exchange floor to ensure regulatory compliance.
5. E) is based on NYSE’s ARCA electronic trading engine.

 

Answer:  E

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

30) A NYSE member who trades only for his or her own account is called a(n):

1. A) floor trader.
2. B) specialist.
3. C) individual broker.
4. D) floor broker.
5. E) house broker.

 

Answer:  A

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

31) The location on an exchange floor where a particular security trades is called a(n):

1. A) specialist’s post.
2. B) broker’s terminal.
3. C) floor spot.
4. D) exchange spot.
5. E) market pit.

 

Answer:  A

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

32) You want to sell shares of stock at the current price. Which type of order should you place?

1. A) limit
2. B) post
3. C) market
4. D) short
5. E) stop

 

Answer:  C

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock trading and strategies

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

33) An order to buy shares of stock at a stated price or less is called a ________ order.

1. A) limit
2. B) stop
3. C) market
4. D) short
5. E) bid

 

Answer:  A

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock trading and strategies

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

34) An order to sell that involves a preset trigger point is called a ________ order.

1. A) limit
2. B) day
3. C) stop
4. D) short
5. E) market

 

Answer:  C

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock trading and strategies

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

35) A market centered on dealers buying and selling for their own inventories is called a(n):

1. A) exchange floor.
2. B) SuperDot.
3. C) OTC market.
4. D) subscriber market.
5. E) Big Board.

 

Answer:  C

Explanation:  See Section 5.4

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Stock exchanges and markets

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

36) Which one of the following describes an ECN?

1. A) website used by investors to trade directly with other investors
2. B) website limited to use by professional brokers and dealers
3. C) computerized trading floor
4. D) communications network used by specialists
5. E) cellular trading network

 

Answer:  A

Explanation:  See Section 5.4

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Stock exchanges and markets

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

37) Inside quotes are the:

1. A) highest asked and lowest bid quotes offered by securities dealers.
2. B) highest bid and lowest asked quotes offered by securities dealers.
3. C) latest prices at which corporate insiders have purchased or sold securities.
4. D) bid and asked prices which are offered only to institutional traders or large private investors.
5. E) latest price at which a security traded.

 

Answer:  B

Explanation:  See Section 5.4

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Stock market prices and reporting

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

38) The off-exchange market in which exchange-listed securities trade is referred to as the ________ market.

1. A) independent
2. B) secondary
3. C) fourth
4. D) third
5. E) primary

 

Answer:  D

Explanation:  See Section 5.5

Difficulty: 1 Easy

Section:  5.5 NYSE and NASDAQ Competitors

Topic:  Stock exchanges and markets

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

39) The market where individual investors directly trade exchange-listed securities with other individual investors is referred to as the ________ market.

1. A) home
2. B) independent
3. C) third
4. D) fourth
5. E) SuperDOT

 

Answer:  D

Explanation:  See Section 5.5

Difficulty: 1 Easy

Section:  5.5 NYSE and NASDAQ Competitors

Topic:  Stock exchanges and markets

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

40) Which of the following types of indexes is a stock market index in which stocks are held in proportion to their share price?

1. A) balanced
2. B) market-weighted
3. C) dollar-weighted
4. D) price-weighted
5. E) value-weighted

 

Answer:  D

Explanation:  See Section 5.6

Difficulty: 1 Easy

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

41) When stocks are held in an index in proportion to their total company market value, the index is:

1. A) dollar-weighted.
2. B) front-weighted.
3. C) back-weighted.
4. D) price-weighted.
5. E) value-weighted.

 

Answer:  E

Explanation:  See Section 5.6

Difficulty: 1 Easy

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

42) An index is valued on a daily basis. However, some stocks in this particular index have not traded recently. As a result, this index suffers from index:

1. A) fatigue.
2. B) devaluation.
3. C) flatness.
4. D) staleness.
5. E) weighting.

 

Answer:  D

Explanation:  See Section 5.6

Difficulty: 1 Easy

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

43) Which one of the following statements concerning the NYSE is correct?

1. A) The NYSE was created based on the Walnut Tree Agreement.
2. B) The average daily trading volume on the NYSE in 2007 was approximately one billion shares.
3. C) The NYSE and NASDAQ merged in 2007.
4. D) The NYSE is part of a firm that also operates a stock exchange in Amsterdam.
5. E) The NYSE merged with NASDAQ in 2007.

 

Answer:  D

Explanation:  See Section Introduction

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

44) Which of the following are common sources of venture capital?

 

1. private individuals
2. NASDAQ

III. university endowment funds

1. insurance companies
2. A) I and II only
3. B) III and IV only
4. C) I, III, and IV only
5. D) I, II, and IV only
6. E) I, II, III, and IV

 

Answer:  C

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Private equity

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

45) Which one of the following statements concerning venture capital is correct?

1. A) Venture capital is frequently provided in stages with each stage financed by a different venture capitalist.
2. B) Most venture capitalists are passive investors.
3. C) The founders of a firm generally realize substantial payoffs as soon as the firm receives venture financing.
4. D) Venture capitalists generally compete with banks to find projects to finance.
5. E) Well established firms tend to absorb most of the available venture capital.

 

Answer:  A

Explanation:  See Section 5.1

Difficulty: 2 Medium

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Private equity

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

46) How long is the “lock-up” period that is commonly found in an IPO underwriting contract?

1. A) one month
2. B) three months
3. C) six months
4. D) one year
5. E) eighteen months

 

Answer:  C

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Basics of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

47) Which one of the following can be assumed when the SEC approves an IPO registration?

1. A) The securities offering will provide value to the shareholders.
2. B) The issuer is financially sound.
3. C) The issuer will remain solvent.
4. D) All rules have been followed to allow for full disclosure of information.
5. E) The stock price is set at a level which will allow shareholders to earn a positive rate of return.

 

Answer:  D

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Basics of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

48) Which one of the following transactions occurs in the primary market?

1. A) sale of stock by Shareholder A to Shareholder B
2. B) gift of shares from a grandmother to her granddaughter
3. C) sale of newly issued shares by the issuer to a shareholder
4. D) sale of shares in the third market
5. E) purchase of shares by a dealer from a shareholder

 

Answer:  C

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Primary and secondary markets

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

49) Trey currently owns 545,000 shares of ABC stock. He will sell those shares for $17.10 a share. He is also willing to purchase additional shares for $17.07 a share. Trey is a securities:

1. A) broker.
2. B) representative.
3. C) underwriter.
4. D) floor broker.
5. E) dealer.

 

Answer:  E

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Stock exchanges and markets

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

50) Alexis is an individual investor. She purchases shares at the ________ price and sells at the ________ price.

1. A) asked; bid
2. B) average; asked
3. C) bid; asked
4. D) bid; average
5. E) asked; average

 

Answer:  A

Explanation:  See Section 5.1

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Stock market prices and reporting

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

51) What is the current structure of the NYSE?

1. A) general partnership
2. B) limited partnership
3. C) non-profit organization
4. D) publicly traded corporation
5. E) government agency

 

Answer:  D

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

52) In 2007, NYSE Holdings merged with which one of the following?

1. A) NASDAQ
2. B) AMEX
3. C) Chicago Stock Exchange
4. D) London Stock Exchange
5. E) Euronext, N.V.

 

Answer:  E

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

53) In order to currently trade on the floor of the NYSE, members must:

1. A) be registered as a floor trader.
2. B) own a seat.
3. C) purchase a trading license.
4. D) be a specialist.
5. E) be designated as a floor broker.

 

Answer:  C

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

54) Which one of the following has the greatest duty to provide liquidity to the financial market?

1. A) floor broker
2. B) independent broker
3. C) dealer
4. D) designated market maker
5. E) floor trader

 

Answer:  D

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

55) The SuperDOT system has lessened the role of which one of the following?

1. A) personal financial advisers
2. B) floor traders
3. C) specialists
4. D) floor brokers
5. E) underwriters

 

Answer:  D

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

56) Which one of the following statements related to the NYSE Hybrid market is correct?

1. A) Floor brokers operate both electronically and in person.
2. B) The Hybrid system replaces the market specialists.
3. C) The automated system works better than the specialist for stocks with minimal liquidity.
4. D) The automated system will only replace the specialist in times of market duress.
5. E) Investors can automatically trade an unlimited number of shares.

 

Answer:  A

Explanation:  See Section 5.2

Difficulty: 1 Easy

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

57) To be listed on the NYSE, a firm must have at least:

1. A) 2,500 shareholders.
2. B) 100,000 shares traded on an average day.
3. C) 1.5 million shares held by the public.
4. D) $75 million in market value for an IPO.
5. E) pre-tax aggregate earnings of $10 million in the previous 3 years.

 

Answer:  E

Explanation:  See Section 5.2

Difficulty: 2 Medium

Section:  5.2 The New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

58) Lucas wants to sell 9,000 shares of stock and places a market order. The floor broker is unable to arrange the sale with another floor broker so the specialist agrees to “stop” the stock. What has the specialist agreed to do?

1. A) cancel the order
2. B) place the order into the order book to hold until an order to buy 9,000 shares is received
3. C) purchase the shares if no other buyer is readily available
4. D) sell the shares to the next available buyer regardless of the price received
5. E) sell the shares at the end of the trading day at the best price available at that time

 

Answer:  C

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

59) The duties of a specialist include which of the following?

 

1. maintain an orderly market
2. offer a higher bid price than the floor brokers

III. provide liquidity to the market

1. purchase all shares offered as limit sell

 

1. A) I and III only
2. B) II and III only
3. C) I, II, and III only
4. D) I, III, and IV only
5. E) I, II, III, and IV

 

Answer:  A

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

60) Fay placed an order to sell 500 shares of stock she currently owned. As soon as the order reached the trading floor, the shares were immediately sold. Which type of order did Faith place?

1. A) limit
2. B) day
3. C) market
4. D) short
5. E) stop

 

Answer:  C

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock trading and strategies

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

61) Sam placed a limit order to sell 500 shares of stock at $14 a share. Which of the following does Sam know for sure?

 

1. His order will execute but the time of execution is unknown.
2. His order may never execute.

III. He will receive exactly $7,000 if his order executes.

1. He could receive more, but not less, than $14 a share.

 

1. A) I and III only
2. B) I and IV only
3. C) II and III only
4. D) II and IV only
5. E) I only

 

Answer:  D

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock trading and strategies

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 2 Understand

Accessibility:  Keyboard Navigation

62) Kelly wants to sell 600 shares of DeLuxe stock at the going market price after the stock reaches $42 a share. Which type of order should she place?

1. A) stop
2. B) limit
3. C) market
4. D) fixed
5. E) loss

 

Answer:  A

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock trading and strategies

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

63) After the trigger point is reached, a stop-loss order will be executed at the:

1. A) trigger price.
2. B) stop price.
3. C) trigger price or better.
4. D) stop price or better.
5. E) market price.

 

Answer:  E

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock trading and strategies

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

64) Which one of the following orders is frequently used as a means to limit losses resulting from a short sale?

1. A) limit
2. B) market
3. C) day
4. D) stop-sell
5. E) stop-buy

 

Answer:  E

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock trading and strategies

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

65) Mark just placed a stop limit order to sell 100 shares at $21 stop, $18 limit. Which one of the following statements is correct concerning this order if the current market price is $16?

1. A) As soon as the price rises to $18, the stock will be sold.
2. B) The stock will sell for at least $18 but less than $21.
3. C) The stock will sell for $18 a share as soon as the price hits $21.
4. D) The order will become a limit order to sell at $21 once the market price reaches $18.
5. E) The order will become a limit order to sell at $18 once the market price reaches $21.

 

Answer:  E

Explanation:  See Section 5.3

Difficulty: 1 Easy

Section:  5.3 Operation of the New York Stock Exchange

Topic:  Stock trading and strategies

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

66) NASDAQ dealers post which one of the following in addition to their bid and ask prices?

1. A) commission rates
2. B) front-end load charges
3. C) number of shares they will commit to buy or sell
4. D) total trades for the day
5. E) trading fees

 

Answer:  C

Explanation:  See Section 5.4

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Short sales

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

67) NASDAQ has which of the following characteristics?

 

1. trading floor
2. computer network

III. specialist system

1. multiple market makers

 

1. A) I and IV only
2. B) II and IV only
3. C) I, III, and IV only
4. D) II, III, and IV only
5. E) I, II, III, and IV

 

Answer:  B

Explanation:  See Section 5.4

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Stock exchanges and markets

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

68) Which one of the following statements concerning NASDAQ is correct?

1. A) The NASDAQ Capital Market has the most stringent listing requirements of any of the NASDAQ companies.
2. B) NASDAQ is actually comprised of four separate markets.
3. C) Microsoft shares are listed on the NASDAQ Global Market.
4. D) NASDAQ has more total dollar volume of trading than does the NYSE.
5. E) There are more companies listed on NASDAQ than on NYSE.

 

Answer:  E

Explanation:  See Section 5.4

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Stock exchanges and markets

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

 

69) The orders displayed on NASDAQ are placed by:

1. A) individuals on ECNs only.
2. B) market makers only.
3. C) both market makers and individuals on ECNs.
4. D) brokerage firms.
5. E) floor brokers.

 

Answer:  C

Explanation:  See Section 5.4

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Stock exchanges and markets

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

70) Stocks which are listed on the NYSE can:

1. A) not be listed on any other exchange.
2. B) only be dual listed on a regional exchange.
3. C) only be dual listed on Instinet.
4. D) only be dual listed on the Archipelago Exchange.
5. E) also be listed on NASDAQ.

 

Answer:  E

Explanation:  See Section 5.5

Difficulty: 1 Easy

Section:  5.5 NYSE and NASDAQ Competitors

Topic:  Stock exchanges and markets

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

71) The stocks listed on the Pink Sheets:

1. A) are those stocks trading on the NASDAQ CAPITAL MARKET.
2. B) do not have to file financial statements with the SEC.
3. C) have all been delisted by the NYSE.
4. D) are the highest priced stocks listed on NASDAQ.
5. E) must file financial statements with the SEC but do not have to meet any listing requirements.

 

Answer:  B

Explanation:  See Section 5.4

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

72) Which of the following are common characteristic of the OTCBB market?

 

1. low stock prices
2. dual listings with NASDAQ
3. high percentage price changes
4. thinly traded securities
5. A) I and III only
6. B) I, II, and III only
7. C) I, III, and IV only
8. D) II, II, and IV only
9. E) I, II, III, and IV

 

Answer:  C

Explanation:  See Section 5.4

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Stock exchanges and markets

Learning Objective:  05-02 The workings of the New York Stock Exchange.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

73) The DJIA is an index of the stock prices of ________ firms.

1. A) 25
2. B) 30
3. C) 50
4. D) 100
5. E) 500

 

Answer:  B

Explanation:  See Section 5.6

Difficulty: 1 Easy

Section:  5.6 Stock Market Information

Topic:  Stock exchanges and markets

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

74) Stock market indexes:

1. A) are all computed using the same methodology.
2. B) all react the same to a change in the price of a particular stock.
3. C) all cover the same market sectors.
4. D) are all price-weighted.
5. E) vary in the type of stocks included.

 

Answer:  E

Explanation:  See Section 5.6

Difficulty: 1 Easy

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

75) Which one of the following is the primary flaw of a price-weighted index?

1. A) Price-weighted indexes ignore stock splits which affect stock prices.
2. B) The effect a company has on the index is dependent solely on the price per share.
3. C) Only a small number of stocks can be included in a price-weighted index.
4. D) If the number of shares outstanding of an index stock changes, the index divisor must be recomputed.
5. E) The index can only be computed once the trading day is over.

 

Answer:  B

Explanation:  See Section 5.6

Difficulty: 1 Easy

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

 

76) Which one of the following statements related to stock indexes is correct?

1. A) The index divisor increases in value whenever a stock in the index undergoes a stock split.
2. B) A value-weighted index includes both dividends and capital gains.
3. C) The S&P 500 index is value-weighted.
4. D) The DJIA is value-weighted.
5. E) Index staleness is more apt to be a problem for the DJIA than for the Wilshire 5000.

 

Answer:  C

Explanation:  See Section 5.6

Difficulty: 1 Easy

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 1 Remember

Accessibility:  Keyboard Navigation

 

77) Alcorn Metals just sold 1.5 million shares through an IPO offering. The shares were offered at $31.50 a share and all shares were sold. The firm received a total of $50,200,000 for this issue. What was the spread?

5. A) 5.49 percent
6. B) 6.24 percent
7. C) 6.40 percent
8. D) 7.00 percent
9. E) 7.12 percent

 

Answer:  B

Explanation:  Spread = [$50,200,000 / ($31.50 × 1,500,000)] − 1 = 6.24 percent

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Stock market indexes and averages

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 3 Apply

Accessibility:  Keyboard Navigation

 

 

78) Reliant Underwriters has agreed to a firm commitment underwriting in which they will pay $36.75 million in exchange for 3 million shares of stock for an IPO offering. The offering price is expected to be $13.50 a share. How much will the underwriters earn if all of the shares can be sold?

1. A) $1.25 million
2. B) $2.75 million
3. C) $3.75 million
4. D) $4.25 million
5. E) $4.50 million

 

Answer:  C

Explanation:  Underwriting fees = ($13.50 × 3,000,000) − $36,750,000 = $3.75 million

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Costs of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 3 Apply

Accessibility:  Keyboard Navigation

 

79) In a recent IPO, the Sausage Co. offered 1.4 million shares of stock at an offer price of $16 a share. The underwriting was conducted on a best efforts basis with a spread of 7.0 percent. The Sausage Co. received a total of $20,079,868.00 in sale proceeds. How many shares were sold?

1. A) 1,349,453 shares
2. B) 1,486,500 shares
3. C) 1,498,200 shares
4. D) 1,505,700 shares
5. E) 1,508,400 shares

 

Answer:  A

Explanation:  Number of shares = [$20,079,868 / (1 − 0.07)] / $16 = 1,349,453 shares

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Costs of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 3 Apply

Accessibility:  Keyboard Navigation

 

 

80) A best efforts IPO underwriting consisted of 1.5 million shares at an offer price of $25 a share. The underwriter’s fee was set at 6.65 percent. How many shares were sold if the issuer received $42,900,000?

1. A) 2,011,800 shares
2. B) 1,838,243 shares
3. C) 1,760,915 shares
4. D) 2,346,300 shares
5. E) 2,053,700 shares

 

Answer:  B

Explanation:  Number of shares = [$42,900,000 / (1 − 0.0665)] / $25 = 1,838,243 shares

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Costs of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 3 Apply

Accessibility:  Keyboard Navigation

 

81) ML Underwriters paid an issuer $37,694,528 as IPO proceeds. The IPO offered 1.86 million shares of which 1.835 million were sold at an offer price of $21.85 a share. The underwriting spread was 7.25 percent. What type of underwriting was this?

1. A) best efforts
2. B) variable
3. C) firm commitment
4. D) plain vanilla
5. E) stand-by

 

Answer:  C

Explanation:  Number of shares = [$37,694,528 / (1 − 0.0725)] / $21.85 = 1,860,000 shares. This was a firm commitment underwriting since the issuer was paid for all of the shares, even though the underwriter did not sell the entire issue.

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Costs of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 3 Apply

Accessibility:  Keyboard Navigation

 

 

82) DT Metals is offering 700 shares in a Dutch auction IPO. The following bids have been received:

 

 

Bidder	Quantity	Price
A	100	$	24
B	200		22
C	200		22
D	300		21
E	600		20

 

 

What will the gross proceeds be for this offering?

1. A) $12,000
2. B) $12,600
3. C) $13,200
4. D) $13,300
5. E) $14,700

 

Answer:  E

Explanation:  Proceeds = 700 × $21 = $14,700

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Costs of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 3 Apply

 

 

83) Moonlight is offering 1,100 shares in a Dutch auction IPO. The following bids have been received:

 

 

Bidder	Quantity	Price
A	200	$	18
B	100		18
C	400		17
D	400		16
E	200		16

 

 

How much will Moonlight receive from this offering if the underwriter’s fee is 6.5 percent?

905. A) $12,905.75
906. B) $13,440.60
907. C) $15,184.25
908. D) $17,484.50
909. E) $19,095.30

 

Answer:  D

Explanation:  (1,100 × $16) × (1 − 0.065) = $17,484.50

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Public offerings

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 3 Apply

 

 

84) Mason Materials is offering 800 shares in a Dutch auction IPO. The following bids have been received:

 

 

Bidder	Quantity	Price
A	200	$	28
B	300		27
C	100		27
D	500		26
E	900		25

 

 

How many shares will be allocated to Bidder A?

1. A) 0
2. B) 80
3. C) 125
4. D) 145
5. E) 200

 

Answer:  D

Explanation:  Allocation = 200 × [800 / (200 + 300 + 100 + 500)] = 145 shares

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Costs of issuing securities

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 3 Apply

 

 

85) Juno Markets is offering 900 shares in a Dutch auction IPO. The following bids have been received:

 

 

Bidder	Quantity	Price
A	100	$	18
B	300	$	18
C	400	$	16
D	200	$	15
E	800	$	14

 

 

How much will Bidder B have to spend to purchase all of the shares that have been allocated to him?

50. A) $4,050.00
51. B) $4,212.00
52. C) $4,800.00
53. D) $5,200.00
54. E) $5,700.00

 

Answer:  A

Explanation:  Cost = 300 × [900 / (100 + 300 + 400 + 200)] × $15 = $4,050

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Public offerings

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 3 Apply

 

 

86) An index consists of the following securities and has an index divisor of 3.0. What is the price-weighted index return?

 

 

Stock	Shares O/S				Begin Price				End Price
A		3,500			$	20			$	24
B		6,000			$	15			$	10
C		4,000			$	28			$	36

 

 

9. A) 9.43 percent
10. B) 9.67 percent
11. C) 10.53 percent
12. D) 10.91 percent
13. E) 11.11 percent

 

Answer:  E

Explanation:  Price-weighted index = {[($24 + $10 + $36) / 3] − [($20 + $15 + $28) / 3]} / [($20 + $15 + $28) / 3] = 11.11 percent

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Public offerings

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

 

87) An index consists of the following securities and has an index divisor of 3.0. What is the price-weighted index return?

 

 

Index					Beginning				Ending
Stock	Shares OS				Share Price				Share Price
D		1,000			$	26			$	32
E		4,000			$	30			$	28
F		3,000			$	19			$	22

 

 

9. A) 9.33 percent
10. B) 10.35 percent
11. C) 11.54 percent
12. D) 12.33 percent
13. E) 13.00 percent

 

Answer:  A

Explanation:  Price-weighted index = {[($32 + $28 + $22) / 3] − [($26 + $30 + $19) / 3]} / [($26 + $30 + $19) / 3] = 9.33 percent

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

 

88) An index consists of the following securities and has an index divisor of 3.0. What is the price-weighted index return?

 

 

Stock	Shares Outstanding				Beginning Share Price				Ending Share Price
A		4,000			$	21			$	16
L		1,000			$	49			$	61
S		3,000			$	37			$	38

 

 

4. A) -4.76 percent
5. B) -2.05 percent
6. C) 3.09 percent
7. D) 5.17 percent
8. E) 7.48 percent

 

Answer:  E

Explanation:  Price-weighted index = {[($16 + $61 + $38) / 3] − [($21 + $49 + $37) / 3]} / [($21 + $49 + $37) / 3] = 7.48 percent

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

 

89) An index consists of the following securities and has an index divisor of 2.0. What is the price-weighted index return?

 

 

Index Stock	Shares OS				Beginning Share Price				Ending Share Price
S		4,800			$	55			$	51
T		3,500			$	32			$	36

 

 

1. A) −1.69 percent
2. B) −0.78 percent
3. C) 0.00 percent
4. D) 0.92 percent
5. E) 1.43 percent

 

Answer:  C

Explanation:  Price-weighted index = {[($51 + $36) / 2] − [($55 + $32) / 2]} / [($55 + $32) / 2] = 1.43 percent

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

90) A price-weighted index consists of stocks A, B, and C which are priced at $38, $21, and $26 a share, respectively. The current index divisor is 2.7. What will the new index divisor be if stock B undergoes a 3-for-1 stock split?

2. A) 2.1684
3. B) 2.2553
4. C) 2.5890
5. D) 2.7000
6. E) 3.1447

 

Answer:  B

Explanation:  [38 + (21 / 3) + 26] / x = (38 + 21 + 26) / 2.7; x = 2.2553

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

 

91) A price-weighted index consists of stocks A, B, and C which are priced at $50, $35, and $15 a share, respectively. The current index divisor is 2.75. What will the new index advisor be if stock A undergoes a 5-for-1 stock split?

1. A) 0.40
2. B) 0.65
3. C) 1.00
4. D) 1.65
5. E) 1.85

 

Answer:  D

Explanation:  [(50 / 5) + 35 + 15] / x = (50 + 35 + 15) / 2.75; x = 1.65

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

92) A price-weighted index consists of stocks A, B, and C which are priced at $30, $12, and $18 a share, respectively. The current index divisor is 2.40. If stock C undergoes a 1-for-3 reverse stock split, the new index divisor will be:

1. A) 1.92
2. B) 2.11
3. C) 2.20
4. D) 3.08
5. E) 3.12

 

Answer:  A

Explanation:  [30 + 12 + 18 / 3]  /  x = [(30 + 12 + 18) / 2.40]; x = 1.92

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

 

93) An index consists of the following securities. What is the value-weighted index return?

 

 

Value-weighted Stock	Shares O/S				Beginning Share Price					Ending Share Price
T		5,000			$	20					$	28
Z		2,000			$	38					$	40

 

 

12. A) 12.75 percent
13. B) 15.00 percent
14. C) 16.50 percent
15. D) 18.75 percent
16. E) 25.00 percent

 

Answer:  E

Explanation:  Beginning value = (5,000 × 20) + (2,000 × 38) = 176,000

Ending value = (5,000 × 28) + (2,000 × 40) = 220,000

Return = (220,000 − 176,000) / 176,000 = 25.00 percent

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

 

94) An index consists of the following securities. What is the value-weighted index return?

 

 

Stock	Shares Outstanding				Beginning Share Price				Ending Share Price
C		1,000			$	32			$	38
K		4,000			$	22			$	23
S		6,000			$	57			$	55

 

 

1. A) −0.43 percent
2. B) −1.46 percent
3. C) 4.43 percent
4. D) 4.51 percent
5. E) 4.62 percent

 

Answer:  A

Explanation:  Beginning value = (1,000 × 32) + (4,000 × 22) + (6,000 × 57) = 462,000

Ending value = (1,000 × 38) + (4,000 × 23) + (6,000 × 55) = 460,000

Return = (460,000 − 462,000) / 462,000 = −0.43 percent

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

 

95) An index consists of the following securities. What is the value-weighted index return?

 

 

Stock	Shares O/S				Begin Price				End Price
C		4,500			$	18			$	22
T		7,500			$	12			$	11
W		3,500			$	32			$	36

 

 

3. A) 3.72 percent
4. B) 5.09 percent
5. C) 6.61 percent
6. D) 7.07 percent
7. E) 8.17 percent

 

Answer:  D

Explanation:  Beginning value = (4,500 × 18) + (7,500 × 12) + (3,500 × 32) = 283,000

Ending value = (4,500 × 22) + (7,500 × 11) + (3,500 × 36) = 307,500

Return = (307,500 − 283,000) / 283,000 = 7.07 percent

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

 

96) You have the following information:

 

 

Stock	Shares Outstanding				Beginning Share Price				Ending Share Price
A		1,000			$	35			$	38
B		2,000			$	22			$	23

 

 

You want the beginning price-weighted index of these two stocks to be 100. Given this, what is the ending index value?

93. A) 93.44
94. B) 98.10
95. C) 107.02
96. D) 108.36
97. E) 110.40

 

Answer:  C

Explanation:  Beginning price-weighted index = [(35 + 22) / (35 + 22)] × 100 = 100

Ending price-weighted index = [(38 + 23) / (35 + 22)] × 100 = 107.02

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

 

97) You have the following information:

 

 

Stock	Shares OS				BOY Price				EOY Price
L		3,000			$	15			$	18
K		57,000			$	31			$	35

 

 

You want the beginning price-weighted index of these two stocks to be 500. Given this, what is the ending index value?

408. A) 408.33
409. B) 487.08
410. C) 511.19
411. D) 576.09
412. E) 612.24

 

Answer:  D

Explanation:  Beginning price-weighted index = [(15 + 31) / (15 + 31)] × 500 = 500

Ending price-weighted index = [(18 + 35) / (15 + 31)] × 500 = 576.09

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

98) An index has a market value of $695,200 at the beginning of the period and $741,900 at the end of the period. If you want the beginning index value to be 100, what is the ending index value?

104. A) 104.73
105. B) 105.42
106. C) 105.67
107. D) 105.89
108. E) 106.72

 

Answer:  E

Explanation:  Beginning value-weighted index = (695,200 / 695,200) × 100 = 100

Ending value-weighted index = (741,900 / 695,200) × 100 = 106.72

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

Accessibility:  Keyboard Navigation

 

 

99) Assume the DJIA closed at 15,150 last night. The divisor is 0.123017848. Assume that 29 of the stocks in the index were unchanged today. One stock increased in value from $44.80 a share yesterday to $47.90 a share today. What is the DJIA index value at the close of trading today?

175. A) 15,175.20
176. B) 15,208.30
177. C) 15,365.60
178. D) 15,412.20
179. E) 15,524.10

 

Answer:  A

Explanation:  Old SP = 15,150 × 0.123017848 = 1,863.72

New SP = 1,863.72 + (47.90 − 44.80) = 1,866.82

New DJIA = 1,866.82 / 0.123017848 = 15,175.20

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

Accessibility:  Keyboard Navigation

 

100) Yesterday, the DJIA closed at 12,309.16. The divisor is 0.123017848. Today, every one of the stocks in the index increased in value by $0.40 a share. What is the value of today’s closing DJIA?

1. A) 12,367
2. B) 12,407
3. C) 12,442
4. D) 12,564
5. E) 12,571

 

Answer:  B

Explanation:  Old SP = 12,309.16 × 0.123017848 = 1,514.25

New SP = 1,514.25 + (.40 × 30) = 1,526.25

New DJIA = 1,526.25 / 0.123017848 = 12,407

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

Accessibility:  Keyboard Navigation

 

 

101) An order book displays the following information:

 

 

Buy Orders					Sell Orders
Shares	Price				Shares					Price
200	$	18.15				100				$	18.17
300	$	18.14				500				$	18.18
100	$	18.14				100				$	18.19

 

 

You place a market order to sell 200 shares. At what price will your order be executed?

18. A) $18.13
19. B) $18.14
20. C) $18.15
21. D) $18.16
22. E) $18.17

 

Answer:  C

Explanation:  You will receive the highest buying price, which is $18.15.

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Stock market indexes and averages

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 3 Apply

 

 

102) An order book displays the following information:

 

 

Buy Orders					Sell Orders
Shares	Price				Shares					Price
100	$	18.07				100				$	18.11
500	$	18.06				500				$	18.12
300	$	18.05				100				$	18.12

 

 

You place an order to sell 100 shares. At what price will your order be executed?

18. A) $18.05
19. B) $18.06
20. C) $18.07
21. D) $18.11
22. E) $18.12

 

Answer:  C

Explanation:  You will receive the highest buying price, which is $18.07.

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Stock trading and strategies

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 3 Apply

 

103) Aurora Metals just sold 2 million shares through an IPO offering. The shares were offered at $23.50 a share and all shares were sold. The firm received a total of $50,200,000 for this issue. What was the spread?

5. A) 5.49 percent
6. B) 6.24 percent
7. C) 6.40 percent
8. D) 6.81 percent
9. E) 7.01 percent

 

Answer:  D

Explanation:  Spread = [$50,200,000 / ($23.50 × 2,000,000)] − 1 = 6.81 percent

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Stock market indexes and averages

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 3 Apply

Accessibility:  Keyboard Navigation

 

 

104) Southaven Inc. is offering 1,000 shares in a Dutch auction IPO. The following bids have been received:

 

 

Bidder	Quantity	Price
A	300	$	25
B	200		25
C	500		22
D	400		21
E	200		20

 

 

How much will the firm receive from this offering if the underwriter’s fee is 7.5 percent?

905. A) $17,905.75
906. B) $19,440.60
907. C) $22,385.00
908. D) $27,484.50
909. E) $31,095.30

 

Answer:  C

Explanation:  (1,000 × $22) × (1 − 0.075) = $22,385

Difficulty: 1 Easy

Section:  5.1 Private Equity versus Selling Securities to the Public

Topic:  Public offerings

Learning Objective:  05-01 The differences between private and public equity, and primary and secondary stock markets.

Bloom’s:  Level 3 Apply

 

 

105) An index consists of the following securities and has an index divisor of 2.0. What is the price-weighted index return?

 

 

Stock	Shares O/S				Begin price				End Price
X		4,200			$	35			$	36
Y		3,800			$	30			$	29

 

 

1. A) −1.69 percent
2. B) −0.78 percent
3. C) 0.00 percent
4. D) 0.92 percent
5. E) 1.43 percent

 

Answer:  C

Explanation:  Price-weighted index = {[($36 + $29) / 2] − [($35 + $30) / 2]} / [($35 + $30) / 2] = 0 percent

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

 

106) An index consists of the following securities. What is the value-weighted index return?

 

 

Stock	Shares O/S				Begin Price				End Price
H		5,000			$	18			$	22
I		7,500			$	12			$	11
J		2,000			$	32			$	36

 

 

3. A) 3.72 percent
4. B) 5.09 percent
5. C) 6.61 percent
6. D) 7.07 percent
7. E) 8.40 percent

 

Answer:  E

Explanation:  Beginning value = (5,000 × 18) + (7,500 × 12) + (2,000 × 32) = 244,000

 

Ending value = (5,000 × 22) + (7,500 × 11) + (2,000 × 36) = 264,500

 

Return = (264,500 − 244,000) / 244,000 = 8.40 percent

Difficulty: 2 Medium

Section:  5.6 Stock Market Information

Topic:  Stock market indexes and averages

Learning Objective:  05-04 How to calculate index returns.

Bloom’s:  Level 3 Apply

 

 

107) An order book displays the following information:

 

 

Buy Orders					Sell Orders
Shares	Price				Shares					Price
200	$	18.15				100				$	18.17
300	$	18.14				500				$	18.18
100	$	18.14				100				$	18.19

 

 

You place a market order to sell 500 shares. What will be the total you receive for your order?

1. A) $9,070
2. B) $9,072
3. C) $9,075
4. D) $9,085
5. E) $9,090

 

Answer:  B

Explanation:  You will sell 200 shares at $18.15 = $3,630 and 300 shares for $18.14 = $5,442 for a total of $9,072.

Difficulty: 1 Easy

Section:  5.4 NASDAQ

Topic:  Stock market indexes and averages

Learning Objective:  05-03 How NASDAQ operates.

Bloom’s:  Level 3 Apply