Question 1

Which of the following is NOT a potential disadvantage associated with a firm going public?

Accepted Answer

A)  A more liquid market for owners to sell their ownership shares.
B)  Because shares are more dispersed,management must work with a more diverse group of stakeholders.
C)  The firm faces more rigorous disclosure of its financial situation,and this disclosure requirement has both monetary and time costs.
D)  Management needs to more actively manage shareholder expectations and deal with some investors who have a short-term focus on profitability rather than long-term growth.

Question 2

Advantages to going public with a firm include all but WHICH of the following?

Accepted Answer

A)  The ability for management to offer stock options as a recruiting tool for key employees.
B)  A greater ability for the firm to raise capital.
C)  A more liquid market for owners to sell their ownership shares.This liquidity typically leads to higher prices.
D)  An overall decreased public awareness of the firm.

Question 3

Rank the order of returns from highest to lowest for the following classes of U.S.securities for the time period 1926 - 2011.

Accepted Answer

A)  large stocks,small stocks,30-year Treasury bonds,and 90-day T-bills
B)  small stocks,large stocks,30-year Treasury bonds,and 90-day T-bills
C)  30-year Treasury bonds,large stocks,small stocks,90-day T-bills
D)  90 -day T-bills,large stocks,30-year Treasury bonds,small stocks

Question 4

The ________ is a benchmark set by each financial institution as the rate at which interest is charged to its most-favored (i.e.,least risky) customers.

Accepted Answer

A)  LIBOR
B)  prime rate
C)  discount window rate
D)  federal funds

Question 5

Firms must make regular payments to ________ but are under no contractual obligation to pay dividends to ________.

Accepted Answer

A)  common stockholders; preferred stockholders.
B)  preferred stockholders; bondholders.
C)  bondholders; common stockholders.
D)  common stockholders,bondholders.

Question 6

In the United States,a corporation's board of directors is elected by:

Accepted Answer

A)  bondholders only.
B)  bondholders and preferred stockholders
C)  bondholders,preferred stockholders,and common stockholders.
D)  common stockholders only.

Question 7

________ tend to invest locally and recognize the risk of investing in start-ups.

Accepted Answer

A)  Venture capitalists
B)  Angel investors
C)  Initial public offerings
D)  Private equity firms

Question 8

In what ways are preferred shares like debt and in what ways are they like common equity?

Accepted Answer

Like debt preferred shares are paid prio...

Question 9

What type of risk is assessed by credit rating agencies? Do these agencies generally assign individuals or teams to assess a firm's risk? What are some of the ways the rating agencies are paid for their services?

Accepted Answer

Credit agencies for the most part assess...

Question 10

________ place some restrictions on the firm in such a way as to improve the odds that the bondholders will be repaid.

Accepted Answer

A)  Bond ratings
B)  Bond covenants
C)  Bond rating agencies
D)  Bond exchanges

Question 11

________ are the residual claimants of a firm's cash flows.

Accepted Answer

A)  Preferred shareholders
B)  Common shareholders
C)  Bondholders
D)  Bankers

Question 12

________ are financial creditors for the firm whereas ________ are the firm owners.

Accepted Answer

A)  Bankers; bondholders
B)  Bondholders; stockholders
C)  Stockholders; bondholders
D)  Stockholders; bankers

Question 13

The mandate of the board of directors is to ensure that management makes decisions that are consistent with maximizing the value of PREFERRED shares.

Accepted Answer

A) True 
 B)False

Question 14

Bond yields move inversely to bond price changes.

Accepted Answer

A) True 
 B)False

Question 15

Which of the following interest rates would be inappropriate for use as a base rate for a variable rate bond?

Accepted Answer

A)  The prime rate
B)  LIBOR
C)  A rate determined by the bond issuer's board of directors.
D)  The 10-year Treasury bond rate.

Question 16

From a firm's perspective,preferred shares are at least as desirable as bonds because the firm is able to deduct preferred dividend payments for tax purposes like it can bond interest expenses.

Accepted Answer

A) True 
 B)False

Question 17

$1.00 (one dollar) invested in a portfolio of 90-day U.S.Treasury bills in 1925 would have grown to a value in excess of ________ by 2011 assuming that all cash flows had been reinvested in the portfolio.(Choose the answer closest to the research provided dollar amount.)

Accepted Answer

A)  $1.00
B)  $10.00
C)  $100.00
D)  $1,000.00

Question 18

A bond feature that requires firms to repurchase a portion of its bonds on a regular basis throughout the life of the bonds,or to set aside an equivalent amount is known as a:

Accepted Answer

A)  debenture contract.
B)  call option feature.
C)  sinking fund.
D)  put option feature.

Question 19

Due to regulatory capital requirements,there tends to be a concentration of preferred shares in the ________ industry.

Accepted Answer

A)  airline
B)  railroad
C)  power generation
D)  banking

Question 20

In the event of bankruptcy and liquidation by a firm,all preferred shareholders receive any claims before common shareholders but after both secured and unsecured creditors.

Accepted Answer

A) True 
 B)False

Exam 9: Overview of Capital Markets: Long-Term Financing Instruments

Firms must make regular payments to ________ but are under no contractual obligation to pay dividends to ________.

Correct AnswerverifiedShow Answer

What type of risk is assessed by credit rating agencies? Do these agencies generally assign individuals or teams to assess a firm's risk? What are some of the ways the rating agencies are paid for their services?

Correct AnswerverifiedCredit agencies for the most part assess...View AnswerShow Answer

Advantages to going public with a firm include all but WHICH of the following?

Correct AnswerverifiedShow Answer

________ place some restrictions on the firm in such a way as to improve the odds that the bondholders will be repaid.

Correct AnswerverifiedShow Answer

Which of the following interest rates would be inappropriate for use as a base rate for a variable rate bond?

Correct AnswerverifiedShow Answer

From a firm's perspective,preferred shares are at least as desirable as bonds because the firm is able to deduct preferred dividend payments for tax purposes like it can bond interest expenses.

Correct AnswerverifiedShow Answer

________ are the residual claimants of a firm's cash flows.

Correct AnswerverifiedShow Answer

In the United States,a corporation's board of directors is elected by:

Correct AnswerverifiedShow Answer

In what ways are preferred shares like debt and in what ways are they like common equity?

Correct AnswerverifiedLike debt preferred shares are paid prio...View AnswerShow Answer

________ are financial creditors for the firm whereas ________ are the firm owners.

Correct AnswerverifiedShow Answer

A bond feature that requires firms to repurchase a portion of its bonds on a regular basis throughout the life of the bonds,or to set aside an equivalent amount is known as a:

Correct AnswerverifiedShow Answer

$1.00 (one dollar) invested in a portfolio of 90-day U.S.Treasury bills in 1925 would have grown to a value in excess of ________ by 2011 assuming that all cash flows had been reinvested in the portfolio.(Choose the answer closest to the research provided dollar amount.)

Correct AnswerverifiedShow Answer

Bond yields move inversely to bond price changes.

Correct AnswerverifiedShow Answer

Due to regulatory capital requirements,there tends to be a concentration of preferred shares in the ________ industry.

Correct AnswerverifiedShow Answer

The mandate of the board of directors is to ensure that management makes decisions that are consistent with maximizing the value of PREFERRED shares.

Correct AnswerverifiedShow Answer

The ________ is a benchmark set by each financial institution as the rate at which interest is charged to its most-favored (i.e.,least risky) customers.

Correct AnswerverifiedShow Answer

Rank the order of returns from highest to lowest for the following classes of U.S.securities for the time period 1926 - 2011.

Correct AnswerverifiedShow Answer

In the event of bankruptcy and liquidation by a firm,all preferred shareholders receive any claims before common shareholders but after both secured and unsecured creditors.

Correct AnswerverifiedShow Answer

________ tend to invest locally and recognize the risk of investing in start-ups.

Correct AnswerverifiedShow Answer

Which of the following is NOT a potential disadvantage associated with a firm going public?

Correct AnswerverifiedShow Answer

Firms must make regular payments to but are under no contractual obligation to pay dividends to .

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Credit agencies for the most part assess...
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Like debt preferred shares are paid prio...
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are financial creditors for the firm whereas are the firm owners.

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