Question 1

In countries where stocks are publicly traded, IPOs are underpriced

Accepted Answer

A)   in very few countries.
B)   in less than half the countries.
C)   in every country.
D)   none of these options are true.

Question 2

The Glass-Steagall Act of the 1930s required U.S. banks to separate their commercial banking operations and their investment banking operations into two different entities.

Accepted Answer

A) True 
 B)False

Question 3

All of the following are advantages of going public EXCEPT

Accepted Answer

A)   More funds are available to publicly traded firms.
B)   The fact that a company is public helps in bank negotiations and marketing.
C)   Publicly traded stocks afford the stockholders more liquidity.
D)   The firm must disseminate more information to the public on corporate affairs.

Question 4

The investment banking industry has shifted its activities to underwriting new securities, rather than advising on mergers and acquisitions.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is not a key role of an investment banker?

Accepted Answer

A)   Market-maker
B)   Underwriter
C)   Acting as a transfer agent
D)   Agent in private placement

Question 6

Generally, the larger the dollar value of an issue, the smaller is the spread as a percentage of the offering price.

Accepted Answer

A) True 
 B)False

Question 7

The investment banker is someone who buys large new issues of stocks and then sells them to the public after the stock price has risen.
The investment banker is another type of financial intermediary (see

Accepted Answer

A) True 
 B)False

Question 8

When a company goes public, an initial public offering must occur to sell the ownership of the company to the public.

Accepted Answer

A) True 
 B)False

Question 9

While manipulation of security prices is normally illegal, the SEC allows underwriters to temporarily support the price of stocks that they have brought to market.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is NOT true about IPOs?

Accepted Answer

A)   They are good deals for investors who buy them at a public offering and then sell them quickly afterward.
B)   They are very popular among companies because of the easy assess to money.
C)   They are initially underpriced in every country where stocks are publicly traded.
D)   They usually result in dilution of earnings per share.

Question 11

The investment banker's function involves all of the following EXCEPT

Accepted Answer

A)   Taking a portion of the risk in the distribution of an issue.
B)   Always ensuring a company that a given amount of equity can be sold so that long-range financial planning can be made accurately.
C)   Making a market by buying and selling a security to ensure a liquid market.
D)   Contracting to buy securities from the corporation and resell them to other security dealers and the public.

Question 12

Dilution of earnings occurs because

Accepted Answer

A)   a new issue of common stock creates more shares outstanding, which often reduces earnings per share temporarily.
B)   the company suffers a decline in earnings after taxes.
C)   the investment banker collects an underwriting fee.
D)   all of these options are correct.

Question 13

Firm X needs to net $12,800,000 from the sale of common stock. Its investment banker has informed the firm that the retail price will be $22 per share, and that Firm X will receive $18.50 per share. Out-of-pocket and underwriting costs are $250,000. How many shares must be sold to achieve the desired net to the issuing firm?

Accepted Answer

A)   581,526
B)   654,545
C)   659,091
D)   705,406

Question 14

Leveraged buy-outs usually entail the use of a large proportion of debt to take control of the firm.

Accepted Answer

A) True 
 B)False

Question 15

The Glass-Steag all Act prohibited

Accepted Answer

A)   retail brokerage firms from having investment banking operations.
B)   commercial banks from combining investment banking and commercial banking functions.
C)   investment banks from selling both debt and equity securities.
D)   insurance companies from selling investment products.

Question 16

Shelf registration has nearly eliminated competition in the investment banking industry.
Shelf registration does not directly impact competition. It is used as a comprehensive vehicle for issues in advance for up to two years.

Accepted Answer

A) True 
 B)False

Question 17

The goal of under pricing is to ensure that a large amount of shares of stock is sold.

Accepted Answer

A) True 
 B)False

Question 18

Because of their lower levels of risk to the underwriter, and smaller issuances have lower spread percentages than large issuances.
The smaller the issue, the higher the fees as a percentage of offering price; hence, the greater the spread.

Accepted Answer

A) True 
 B)False

Question 19

Privatization in many foreign markets means selling companies to the public that were previously owned by the state or government.

Accepted Answer

A) True 
 B)False

Question 20

Smaller investment banking houses may handle distributions for relatively unknown corporations on a "best-efforts" basis.

Accepted Answer

A) True 
 B)False

Exam 15: Investment Banking

The Glass-Steagall Act of the 1930s required U.S. banks to separate their commercial banking operations and their investment banking operations into two different entities.

Correct Answer
verified

The goal of under pricing is to ensure that a large amount of shares of stock is sold.

Correct Answer
verified

Because of their lower levels of risk to the underwriter, and smaller issuances have lower spread percentages than large issuances. The smaller the issue, the higher the fees as a percentage of offering price; hence, the greater the spread.

Correct Answer
verified

All of the following are advantages of going public EXCEPT

Correct Answer
verified

The investment banking industry has shifted its activities to underwriting new securities, rather than advising on mergers and acquisitions.

Correct Answer
verified

Privatization in many foreign markets means selling companies to the public that were previously owned by the state or government.

Correct Answer
verified

In countries where stocks are publicly traded, IPOs are underpriced

Correct Answer
verified

Correct Answer
verified

Which of the following is not a key role of an investment banker?

Correct Answer
verified

While manipulation of security prices is normally illegal, the SEC allows underwriters to temporarily support the price of stocks that they have brought to market.

Correct Answer
verified

Dilution of earnings occurs because

Correct Answer
verified

The Glass-Steag all Act prohibited

Correct Answer
verified

When a company goes public, an initial public offering must occur to sell the ownership of the company to the public.

Correct Answer
verified

Leveraged buy-outs usually entail the use of a large proportion of debt to take control of the firm.

Correct Answer
verified

Smaller investment banking houses may handle distributions for relatively unknown corporations on a "best-efforts" basis.

Correct Answer
verified

The investment banker's function involves all of the following EXCEPT

Correct Answer
verified

Which of the following is NOT true about IPOs?

Correct Answer
verified

Generally, the larger the dollar value of an issue, the smaller is the spread as a percentage of the offering price.

Correct Answer
verified

The investment banker is someone who buys large new issues of stocks and then sells them to the public after the stock price has risen. The investment banker is another type of financial intermediary (see

Correct Answer
verified

Shelf registration has nearly eliminated competition in the investment banking industry. Shelf registration does not directly impact competition. It is used as a comprehensive vehicle for issues in advance for up to two years.

Correct Answer
verified

Exam 15: Investment Banking

The Glass-Steagall Act of the 1930s required U.S. banks to separate their commercial banking operations and their investment banking operations into two different entities.

Correct AnswerverifiedShow Answer

The goal of under pricing is to ensure that a large amount of shares of stock is sold.

Correct AnswerverifiedShow Answer

Because of their lower levels of risk to the underwriter, and smaller issuances have lower spread percentages than large issuances. The smaller the issue, the higher the fees as a percentage of offering price; hence, the greater the spread.

Correct AnswerverifiedShow Answer

All of the following are advantages of going public EXCEPT

Correct AnswerverifiedShow Answer

The investment banking industry has shifted its activities to underwriting new securities, rather than advising on mergers and acquisitions.

Correct AnswerverifiedShow Answer

Privatization in many foreign markets means selling companies to the public that were previously owned by the state or government.

Correct AnswerverifiedShow Answer

In countries where stocks are publicly traded, IPOs are underpriced

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which of the following is not a key role of an investment banker?

Correct AnswerverifiedShow Answer

While manipulation of security prices is normally illegal, the SEC allows underwriters to temporarily support the price of stocks that they have brought to market.

Correct AnswerverifiedShow Answer

Dilution of earnings occurs because

Correct AnswerverifiedShow Answer

The Glass-Steag all Act prohibited

Correct AnswerverifiedShow Answer

When a company goes public, an initial public offering must occur to sell the ownership of the company to the public.

Correct AnswerverifiedShow Answer

Leveraged buy-outs usually entail the use of a large proportion of debt to take control of the firm.

Correct AnswerverifiedShow Answer

Smaller investment banking houses may handle distributions for relatively unknown corporations on a "best-efforts" basis.

Correct AnswerverifiedShow Answer

The investment banker's function involves all of the following EXCEPT

Correct AnswerverifiedShow Answer

Which of the following is NOT true about IPOs?

Correct AnswerverifiedShow Answer

Generally, the larger the dollar value of an issue, the smaller is the spread as a percentage of the offering price.

Correct AnswerverifiedShow Answer

The investment banker is someone who buys large new issues of stocks and then sells them to the public after the stock price has risen. The investment banker is another type of financial intermediary (see

Correct AnswerverifiedShow Answer

Shelf registration has nearly eliminated competition in the investment banking industry. Shelf registration does not directly impact competition. It is used as a comprehensive vehicle for issues in advance for up to two years.

Correct AnswerverifiedShow Answer

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