Chapter 10: Stock Offerings and Investor Monitoring

1. Which of the following statements is incorrect?

  a.  A stock represents partial ownership in a corporation.
  b.  Like debt securities, common stock is issued by firms to obtain funds.
  c.  Stocks are issued by corporations to raise short-term funds.
  d.  The secondary stock market enables investors to sell stocks that they had previously purchased.
ANSWER:   c
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

2. Preferred shareholders
  a.  typically have the same voting rights as common shareholders.
  b.  do not share the ownership of the firm with common shareholders.
  c.  typically participate in the profits of the firm beyond the stated fixed annual dividend.
  d.  may not receive a dividend every year.
ANSWER:   d
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

3. From a cost perspective, preferred stock is a less desirable source of capital for a firm than bonds.
  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

4. A ____ prevents dividends from being paid on common stock until all current and previously omitted dividends are
paid on preferred stock.
  a.  residual claim
  b.  preferred margin
  c.  cumulative provision
  d.  liquidation claim
ANSWER:   c

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Chapter 10: Stock Offerings and Investor Monitoring

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

5. Firms assume ____ risk when they issue preferred stock than when they issue bonds. The payment of dividends on
preferred stock ____ be omitted without the firm being forced into bankruptcy.
  a.  more; can
  b.  less; can
  c.  more; cannot
  d.  less; cannot
ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
NATIONAL STANDARDS:   United States - BUSPROG.FMAI.MADU.15.03
STATE STANDARDS:   United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom's: Comprehension

6. When a corporation first decides to issue stock to the public, it engages in a(n)
  a.  secondary offering.
  b.  initial public offering.
  c.  seasoned equity offering.
  d.  none of the above
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

7. A firm can avoid the time lag between registering new securities with the SEC and actually selling them by using
  a.  a proxy.
  b.  shelf registration.
  c.  a margin call.
  d.  preemptive rights.
ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
LEARNING OBJECTIVES:   FMAI.MADU.15.10.04
STATE STANDARDS:   United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom's: Knowledge

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Chapter 10: Stock Offerings and Investor Monitoring
8. To the extent that shares sold during an IPO are discounted from their appropriate price, the proceeds that the issuing
firm receives from the IPO are less than it deserves.
  a.  True
  b.  False
ANSWER:   a
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

9. The transaction costs to the issuing firm in an IPO are usually ____ percent of the funds raised.
  a.  1
  b.  3
  c.  7
  d.  25
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: Knowledge

10. If many investors quickly sell an IPO stock in the secondary market, there will be ____ on the stock's price.
  a.  upward pressure
  b.  downward pressure
  c.  no additional pressure
  d.  none of the above
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: Comprehension

11. The purpose of a lockup provision is to

  a.  keep individual investors from buying and selling stock.
  b.  prevent downward pressure on the stock's price.
  c.  increase the number of outstanding shares.
  d.  allocate a larger proportion of stock to institutional investors.
ANSWER:   b

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Chapter 10: Stock Offerings and Investor Monitoring

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

12. IPOs tend to occur more frequently during recessions.

  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

13. The initial (one-day) return of IPOs in the United States has averaged about ____ percent over the last 30 years.
  a.  10
  b.  20
  c.  30
  d.  50
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

14. The practice of purchasing IPO stock at the offer price and selling the stock shortly afterward is called
  a.  flipping.
  b.  skiing.
  c.  flopping.
  d.  none of the above
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

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Chapter 10: Stock Offerings and Investor Monitoring
15. When brokers encourage investors to place first-day bids for IPO shares that are above the offer price, this is referred
to as
  a.  flipping.
  b.  spinning.
  c.  laddering.
  d.  none of the above
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: Knowledge

16. On average, IPOs of firms tend to perform ____ over a period of a year or longer.
  a.  well
  b.  poorly
  c.  about the same as the S&P 500 index
  d.  none of the above
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

17. A firm that wants to engage in a secondary stock offering does not need to file the offering with the SEC.
  a.  True
  b.  False
ANSWER:   b
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

18. A firm will typically attempt to sell shares from a secondary offering
  a.  far below the prevailing market price.
  b.  far above the prevailing market price.
  c.  at the prevailing market price.
  d.  at the offer price of the IPO.
ANSWER:   c

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Chapter 10: Stock Offerings and Investor Monitoring

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
KEYWORDS:   Bloom's: Comprehension

19. A(n) ____ represents ownership of a foreign stock.

  a.  ADR
  b.  SEAQ
  c.  Nasdaq
  d.  AMEX
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

20. The first-time issuance of shares by a specific firm to the public is referred to as a(n)
  a.  stock repurchase.
  b.  secondary stock offering.
  c.  initial rights issue.
  d.  initial public offering (IPO).
ANSWER:   d
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

21. A new stock issuance by a specific firm that already has stock outstanding is referred to as a(n)
  a.  stock repurchase.
  b.  secondary stock offering.
  c.  initial rights issue.
  d.  initial public offering (IPO).
ANSWER:   b
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
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Chapter 10: Stock Offerings and Investor Monitoring

KEYWORDS:   Bloom's: Knowledge

22. The largest organized exchange in the United States, listing the largest firms, is the
  a.  New York Stock Exchange.
  b.  American Stock Exchange.
  c.  Midwest Stock Exchange.
  d.  Pacific Stock Exchange.
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

23. ____ are employed by brokerage firms and execute orders for clients on the NYSE.
  a.  Specialists
  b.  Commission brokers
  c.  Venture managers
  d.  Dealers
ANSWER:   b
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

24. The OTC market does not have a trading floor.

  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

25. Firms listed on the "pink sheets" of the OTC market

  a.  are typically very large.
  b.  satisfy the Nasdaq's listing requirements.
  c.  are typically owned by various institutional and individual investors.
  d.  none of the above

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Chapter 10: Stock Offerings and Investor Monitoring

ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
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: Comprehension

26. The prevailing price per share divided by the firm's earnings per share is known as the
  a.  dividend yield.
  b.  price-earnings ratio.
  c.  fully diluted earnings per share.
  d.  annual dividend.
ANSWER:   b
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

27. The ____ is a value-weighted average of stock prices of 30 large U.S. firms.

  a.  Dow Jones Industrial Average
  b.  Standard and Poor's 500
  c.  New York Stock Exchange Index
  d.  Nasdaq
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

28. The ____ is a value-weighted index of stock prices of 500 large U.S. firms.
  a.  Dow Jones Industrial Average
  b.  Standard and Poor's 500
  c.  New York Stock Exchange Index
  d.  Nasdaq
ANSWER:   b
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.10.05
NATIONAL STANDARDS:   United States - BUSPROG.FMAI.MADU.15.03
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Chapter 10: Stock Offerings and Investor Monitoring

STATE STANDARDS:   United States - OH - DISC.FMAI.MADU.15.02

KEYWORDS:   Bloom's: Knowledge

29. Sudden favorable news about the performance of a firm will make investors believe that the firm's stock is ____ at its
prevailing price.
  a.  overvalued
  b.  fixed
  c.  appropriate
  d.  undervalued
ANSWER:   d
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

30. Analysts periodically communicate with high-level managers of the firms whose stock they rate.
  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

31. Shareholders can most easily measure a firm's performance by monitoring changes in its ____ over time.
  a.  share price
  b.  employee job descriptions
  c.  board of directors
  d.  asset size
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

32. Which of the following is not true regarding the Sarbanes-Oxley Act?

  a. It requires firms to establish an internal control process for their financial reporting.
  b. It requires a firm’s CEO and CFO to certify that the audited financial statements are accurate.
  c. It allows public accounting firms to offer nonaudit consulting services to an audit client whether the client's
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Chapter 10: Stock Offerings and Investor Monitoring

audit committee pre-approves the nonaudit services or not.

  d. It prevents members of a firm's audit committee from receiving consulting or advising fees or other
compensation from the firm beyond that earned from serving on the board.
ANSWER:   c
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

33. An example of shareholder activism is

  a.  communication with the firm.
  b.  engaging in a proxy contest.
  c.  filing a lawsuit against the board.
  d.  all of the above
ANSWER:   d
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

34. ____ are acquisitions that require substantial amounts of borrowed funds.

  a.  Stock repurchases
  b.  Corporate controls
  c.  Leveraged buyouts
  d.  Stock splits
ANSWER:   c
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: Knowledge

35. ____ are not barriers to corporate control to eliminate agency problems.

  a.  Leveraged buyouts
  b.  Antitakeover amendments
  c.  Poison pills
  d.  Golden parachutes
ANSWER:   a
POINTS:   1

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Chapter 10: Stock Offerings and Investor Monitoring

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: Knowledge

36. Listing stock on a foreign stock exchange

  a.  may increase the stock's liquidity.
  b.  may enhance the firm's global image.
  c.  may increase the pool of potential investors, making it easier to place an entire issue of stock.
  d.  all of the above
ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
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

37. American depository receipts (ADRs) are similar to

  a.  stock options.
  b.  bank deposits.
  c.  stocks.
  d.  bonds.
ANSWER:   c
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

38. ____ are portfolios of international stocks created and managed by various financial institutions.
  a.  International mutual funds
  b.  American depository receipts
  c.  Exchange rate options
  d.  Initial public offerings
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
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Chapter 10: Stock Offerings and Investor Monitoring

39. ____ sell shares to investors and use the proceeds to invest in portfolios of international stocks created and managed
by portfolio managers.
  a.  International mutual funds
  b.  American depository receipts
  c.  World equity depository receipts
  d.  Initial public depository receipts
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

40. When a firm buys some of its shares that it had previously issued, this is referred to as a:
  a.  reverse IPO.
  b.  leveraged buyout.
  c.  ladder spin.
  d.  stock repurchase.
ANSWER:   d
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

41. Whenever _____, the stock price will be driven up.

  a.  supply exceeds demand
  b.  demand exceeds supply
  c.  demand is reduced
  d.  none of the above
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

42. Which of the following is not a form of shareholder activism?

  a. investors communicating their concerns to other investors and to a firm’s high-level managers in an effort to
place pressure on the firm's managers or its board members
  b. poison pills
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Chapter 10: Stock Offerings and Investor Monitoring

  c. shareholder lawsuits
  d. All of the above are forms of shareholder activism.
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

43. Initial public offerings (IPOs) tend to occur more frequently during bearish (weak) stock markets.
  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

44. Initial public offerings (IPOs) typically perform ____ on the day of the IPO and ____ for periods of a year or longer
after the IPO.
  a.  well; poorly
  b.  poorly; well
  c.  well; well
  d.  poorly; poorly
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: Comprehension

45. Which of the following is not a part of the over-the-counter market?

  a.  the Nasdaq
  b.  the pink sheets
  c.  the OTC Bulletin Board
  d.  the New York Stock Exchange
ANSWER:   d
POINTS:   1
DIFFICULTY:   Easy
LEARNING OBJECTIVES:   FMAI.MADU.15.10.05

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Chapter 10: Stock Offerings and Investor Monitoring

NATIONAL STANDARDS:   United States - BUSPROG.FMAI.MADU.15.03

STATE STANDARDS:   United States - OH - DISC.FMAI.MADU.15.02
KEYWORDS:   Bloom's: Knowledge

46. A firm has a current stock price of $15.32. The firm's annual dividend is $1.14 per share. The firm's dividend yield is
  a.  .74 percent.
  b.  1.34 percent.
  c.  7.44 percent.
  d.  1.14 percent.
ANSWER:   c
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

47. If the secondary market for a stock is inactive, then the shares are illiquid.
  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

48. Private firms that need a large equity investment but are not yet in a position to go public may attempt to obtain
funding from a venture capital (VC) fund.
  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

49. Venture capital (VC) funds receive money from wealth investors and from pension funds that need to receive their
money back in one year or less.
  a.  True
  b.  False
ANSWER:   b
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Chapter 10: Stock Offerings and Investor Monitoring

POINTS:   1
DIFFICULTY:   Moderate
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: Comprehension

50. Venture capital (VC) funds commonly serve as advisers to the businesses in which they invest.
  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: Comprehension

51. Venture capital (VC) funds usually invest in publicly traded businesses.

  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

52. Venture capital (VC) funds typically plan to exit from their original investment within about one year.
  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: Comprehension

53. The phrase "leaving money on the table" refers to investors paying more for a stock in the secondary market than was
paid by those investors who were able to buy shares at the initial (offer) price on the IPO date.
  a.  True
  b.  False
ANSWER:   b
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Chapter 10: Stock Offerings and Investor Monitoring

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

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

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Chapter 10: Stock Offerings and Investor Monitoring

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

58. In addition to extended sessions offered by the stock exchanges, some electronic communications networks (ECNs)
allow for trading at any time.
  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

59. As a result of the Sarbanes-Oxley Act, firms were able to reduce their costs of compiling and reporting financial
information.
  a.  True
  b.  False
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

60. The Sarbanes-Oxley Act has improved transparency, but investors may still have limited information about publicly
traded firms.
  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: Comprehension

61. The legal protection of shareholders varies substantially among countries.

  a.  True
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Chapter 10: Stock Offerings and Investor Monitoring

  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.

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Chapter 10: Stock Offerings and Investor Monitoring

  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
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Chapter 10: Stock Offerings and Investor Monitoring
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

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Chapter 10: Stock Offerings and Investor Monitoring
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
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Chapter 10: Stock Offerings and Investor Monitoring

KEYWORDS:   Bloom's: Comprehension

77. International exchange-traded funds (ETFs) represent international indexes that reflect  the stock markets of particular
countries; shares of an index can be purchased or sold, thereby allowing investors to invest directly in a stock index
representing any one of several countries.
  a.  True
  b.  False
ANSWER:   a
POINTS:   1
DIFFICULTY:   Moderate
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

78. Which of the following is not true with respect to venture capital (VC) funds?
  a. When a VC fund decides to invest in a business, it will negotiate the terms of its investment, including the
amount of funds it is willing to invest.
  b. One common exit strategy for VC funds is to sell its equity stake to the public before the business engages in
a public stock offering.
  c. VC funds receive money from wealthy investors and from pension funds that are willing to maintain the
investment for a long-term period.
  d. All of the above are true with respect to VC funds.
ANSWER:   b
POINTS:   1
DIFFICULTY:   Moderate
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: Comprehension

79. Assume that a firm is valued at $800 million and has 6 million shares of stock outstanding. This firm's stock should
have a price of $____ per share.
  a.  6.00
  b.  80.00
  c.  133.33
  d.  none of the above
ANSWER:   c
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: Application

80. The owners of common stock are permitted to vote on the

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Chapter 10: Stock Offerings and Investor Monitoring

  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
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Chapter 10: Stock Offerings and Investor Monitoring
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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Chapter 10: Stock Offerings and Investor Monitoring

  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

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Chapter 10: Stock Offerings and Investor Monitoring

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: Knowledge

90. Possible disadvantages of private stock exchanges to investors include:

  a.  only large institutional investors may purchase shares in privately listed stocks.
  b.  required disclosures may be less than those required when a firm goes public.
  c.  trading volume is limited.
  d.  B and C
ANSWER:   d
POINTS:   1
DIFFICULTY:   Moderate
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: Comprehension

91. After an IPO, firms commonly list their shares on a private stock exchange.
  a.  True
  b.  False
ANSWER:   b
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

92. Managers protected by golden parachutes may be more willing to make decisions that increase the company’s
earnings in the long run, even though the decisions adversely affect the stock price in the short run.
  a.  True
  b.  False
ANSWER:   a
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

93. A firm whose stock price has risen:

  a.  will not have to pay a premium if it acquires another firm.
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Chapter 10: Stock Offerings and Investor Monitoring

  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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Chapter 10: Stock Offerings and Investor Monitoring

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

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
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Chapter 10: Stock Offerings and Investor Monitoring

DIFFICULTY:   Easy
NATIONAL STANDARDS:   United States - BUSPROG.FMAI.MADU.15.03
KEYWORDS:   Bloom’s: Knowledge

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

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