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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 81

True/False

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Corporate bonds provide investors the option of reselling the bond back to the issuing corporation at any time during the life of the bond.

A) True
B) False

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Question 82

Multiple Choice

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Another name for the fixed rate of interest attached to a bond is the:

A) Yield to maturity
B) Dividend
C) Coupon rate
D) Security rate

E) B) and C)
F) C) and D)

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Question 83

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Young investors place more importance on low-risk investments, while elderly investors prefer significant growth in the value of their investments.

Government employees, public school system employees, and even employees of some large companies pay a percentage of their monthly earnings into pension funds. These funds collect a large pool of money that they invest in securities. Pension funds, insurance companies and mutual fund companies which collect large sums of money and then invest these funds into stocks, bonds or other securities are called institutional investors.

According to the Spotlight on Small Business box, the goal of the Jumpstart Our Business Startups Act (JOBS Act) is to ease small business financing problems.

When investors purchase ________ stock, they receive a priority claim in the payment of dividends, as well as assets, if the business is liquidated. However, these investors do not have voting rights.

Discuss the role of investment bankers in the securities markets.

Both stocks and bonds represent temporary sources of funding for a firm. Eventually they must be repaid.

A well-diversified portfolio would consist of a variety of investments and even cash for emergencies. The important thing is that the choice of investments spreads the risk. Some investments may perform very well in any one year while others may lag. Those performing well will balance out those that are underperforming.

A share of preferred stock currently sells for $120. It offers the investor a dividend rate of 8%, with a par value of $100. If the company is able to pay dividends, preferred stockholders would receive a dividend of $9.60 per share.

After operating for years as a privately held corporation, MidAtlantic Ironworks plans to publicly trade its stock. As a midsized firm, MidAtlantic wants to avoid excessive paperwork, and the fear of being delisted in the future. The ________ provides the best fit for MidAtlantic's plans.

Bonds perceived as high risk typically pay ________ interest rates.

What agency sets the margin rates for purchasing stock in the U.S.?

Although you were not fortunate enough to get Chipper's Golf Resort stock [ticker symbol: CHPR] as an IPO, you are still thinking about trying to add some to your portfolio. Last week when you mentioned it to your broker, he said that there are plenty of shares trading on ____________, but he wanted to send you the company's financial disclosures provided in the ______ before you finalize your decision.

Corporations sell a new issuance of securities in the Primary Market.

If an investor's strategy is: "buy low, and sell high." We could conclude that his optimism regarding future stock price increases indicates that he is:

Dividends represent a portion of a firm's profits that are distributed to bondholders first then stockholders.

Interest rates vary with changes in the state of the economy.

Preferred stockholders have voting rights privileges not shared by common stockholders.

As creditors of a firm, bondholders enjoy voting privileges for the firm's board of directors' elections.