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Robert placed an order with his broker to purchase 500 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $21 a share.The number of shares allocated to Robert, along with the closing stock price at the end of the first day of trading for each stock, are as follows: Robert placed an order with his broker to purchase 500 shares of each of three IPOs that are being released this month.Each IPO has an offer price of $21 a share.The number of shares allocated to Robert, along with the closing stock price at the end of the first day of trading for each stock, are as follows: What is his total profit or loss on these three stocks as of the end of the first day of trading for each stock? A) $639.50 B) -$369.50 C) -1,350.00 D) $572.00 E) $1,370 What is his total profit or loss on these three stocks as of the end of the first day of trading for each stock?


A) $639.50
B) -$369.50
C) -1,350.00
D) $572.00
E) $1,370

F) B) and D)
G) A) and C)

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Mushroom Veggie Meats would like to sell 3,000 shares of stock using a Dutch auction.The bids received are as follows: Mushroom Veggie Meats would like to sell 3,000 shares of stock using a Dutch auction.The bids received are as follows: What is the total amount the issuer will receive from this auction? Ignore costs. A) $128,600 B) $126,000 C) $127,400 D) $125,000 E) $129,600 What is the total amount the issuer will receive from this auction? Ignore costs.


A) $128,600
B) $126,000
C) $127,400
D) $125,000
E) $129,600

F) B) and C)
G) A) and E)

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What is the legal document called that is provided to potential investors and describes a new security offering?


A) Security agreement
B) Prospectus
C) Public statement
D) Registration statement
E) Formal filing

F) None of the above
G) A) and E)

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AJ's Glass Works just arranged a three-year direct business loan.Which one of the following terms matches this loan arrangement?


A) Term loan
B) Private placement
C) Rights offer
D) Seasoned offer
E) Shelf offer

F) B) and D)
G) C) and D)

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Deep Water Marina has 12,000 shares of stock outstanding that were sold to the general public last year.The firm has just decided to issue an additional 4,000 shares and will make these shares available to the firm's current shareholders before making any offer to the general public.Which type of offer is this?


A) General cash offer
B) Rights offer
C) In-house offering
D) Private placement
E) Initial public offering

F) B) and C)
G) B) and D)

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Assume the SEC approved the registration statement for a new securities issue this morning.Which one of the following statements must be true about this issue?


A) The red herrings can finally be distributed as their distribution was awaiting SEC approval.
B) The waiting period started when the approval was received this morning.
C) The SEC believes the issue will be a profitable investment for all purchases made at the offer price.
D) The issuer is following all the required rules and regulations in regard to this issue.
E) The final prospectuses have all been delivered or the SEC would not have approved the issue.

F) A) and C)
G) A) and B)

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High Mountain Gear issued 385,000 shares of stock last week.The underwriters charged a spread of 7.2 percent in exchange for agreeing to a firm commitment.The legal and accounting fees were $302,000.The company incurred $39,000 in indirect costs.The offer price was $17 a share.Within the day of trading, the stock was selling for $18.80 a share.What was the flotation cost as a percentage of the funds raised?


A) 31.90 percent
B) 35.78 percent
C) 32.51 percent
D) 26.26 percent
E) 29.08 percent

F) A) and B)
G) B) and D)

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Which of the following have been offered as justification for IPO underpricing? I.Young firms tend to be very risky. II.The best IPOs are oversubscribed. III.Underwriters like to avoid lawsuits. IV.Underpricing benefits the existing shareholders.


A) I and III only
B) II and IV only
C) I, II, and III only
D) II, III, and IV only
E) I, II, III, and IV

F) A) and C)
G) B) and D)

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Mimi placed an order with her broker to purchase 500 shares of each of three IPOs that are being released soon.Each IPO has an offer price of $15 a share.The number of shares allocated to her along with the closing stock price at the end of the first day of trading for each stock, are as follows: Mimi placed an order with her broker to purchase 500 shares of each of three IPOs that are being released soon.Each IPO has an offer price of $15 a share.The number of shares allocated to her along with the closing stock price at the end of the first day of trading for each stock, are as follows: What is her total profit or loss on these three stocks as of the end of the first day of trading for each stock? A) -$500 B) -$100 C) -$50 D) $0 E) $500 What is her total profit or loss on these three stocks as of the end of the first day of trading for each stock?


A) -$500
B) -$100
C) -$50
D) $0
E) $500

F) C) and D)
G) None of the above

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A lockup agreement ensures:


A) the lead underwriter maintains an economic interest in the IPO it is managing.
B) the issuer of new securities receives a minimally agreed upon amount from the issue.
C) no research reports are issued during the waiting period.
D) company insiders maintain an economic interest in the issuer of an IPO for a minimum period of time.
E) an IPO is not underpriced by more than five percent.

F) B) and E)
G) A) and B)

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Caitlyn is interested in purchasing 1,500 shares of ABC, Inc., when the shares are issued.Her broker just gave her a preliminary prospectus to review as she waits for the shares to be cleared for sale.What is the name of this prospectus?


A) Green Shoe
B) Rights offer
C) Red herring
D) Spread
E) Tombstone

F) A) and B)
G) A) and C)

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Who determines the offer price in a Dutch auction?


A) Lead underwriter
B) Chief financial officer of the issuing firm
C) SEC
D) Bidders
E) Board of directors of the issuing firm

F) A) and B)
G) A) and D)

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An average individual investor who participates in an IPO:


A) frequently earns high returns when shares are undersubscribed.
B) generally receives his or her full allocation of shares if oversubscription occurs.
C) often encounters the "winner's curse."
D) is protected from financial loss by the Green Shoe provision.
E) is subject to the lockup provision.

F) A) and D)
G) A) and C)

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Venture capital is most apt to be the source of funding for a:


A) bankruptcy reorganization.
B) global expansion of an established firm.
C) new, high-risk venture.
D) seasonal production costs.
E) daily operations for an established, profitable firm.

F) C) and D)
G) A) and B)

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Space Tours wants to do an IPO but is not comfortable that underwriters will set the most optimal offer price for the securities.Which one of the following might the firm consider to address this uncertainty?


A) Extended quiet period
B) Extended lockup period
C) Best efforts underwriting
D) Dutch auction underwriting
E) Standby underwriting

F) A) and E)
G) C) and D)

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The total direct costs of a debt issue, when expressed as a percentage of gross proceeds, tends to:


A) increase as the quality of the debt increases.
B) decrease as the size of the issue decreases.
C) decrease when the bonds are convertible rather than straight.
D) decrease as the proceeds of the bond issue increase.
E) be relatively the same regardless of the type or quality of the debt issue.

F) A) and E)
G) C) and E)

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Two companies have both announced IPOs at $16.50 per share.One of these is undervalued by $2, and the other is overvalued by $1.60, but you have no way of knowing which is which.You previously placed an order for 1,000 shares of each issue.If an issue is undervalued, it will be rationed, and only half your order will be filled.What profit do you now expect?


A) -$375
B) -$600
C) $25
D) $150
E) $400

F) B) and D)
G) B) and E)

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Which statement is true?


A) IPO underpricing primarily benefits a firm's pre-issue owners.
B) IPO underpricing is a function of the underwriting spread.
C) The more an issue is underpriced, the more it tends to be oversubscribed.
D) Underpricing tends to discourage investors from participating in the IPO market.
E) Undersubscribed shares generally tend to also be underpriced shares.

F) None of the above
G) C) and E)

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What is the advertisement, commonly found in financial newspapers, that announces a public offering of securities and provides the name of the underwriters called?


A) Prospectus
B) Red herring
C) Tombstone
D) Green Shoe
E) Underwriter's ad

F) None of the above
G) A) and C)

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Which statement is true?


A) Firms often pay higher interest rates on term loans than on public issues of debt.
B) The only difference between a term loan and a private placement is the size of the issue.
C) A prospectus is required for equity issues but not for debt issues.
D) The flotation costs of issuing debt tend to be more expensive than for issuing equity.
E) Direct long-term loans must be registered with the SEC.

F) A) and B)
G) C) and E)

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