Question 1

The period of market stabilization usually lasts two or three days after the initial offering, but may extend up to 30 days for difficult-to-distribute securities.

Accepted Answer

A) True 
 B)False

Question 2

Private placement eliminates the expensive and lengthy registration process with the Securities and Exchange Commission.

Accepted Answer

A) True 
 B)False

Question 3

The risk function of investment banking is categorized mainly under

Accepted Answer

A)   underwriting function.
B)   market-maker function.
C)   advisor function.
D)   agent function.

Question 4

The underwriting spread is the guaranteed minimum profit to an investment bank for each share distributed.

Accepted Answer

A) True 
 B)False

Question 5

Investment banking is changing dramatically into an industry where

Accepted Answer

A)   investment bankers are using larger syndicates to distribute initial public offerings.
B)   investment bankers are becoming increasingly larger so that they can take on more risk and have less need for large syndicates.
C)   investment bankers don't need a distribution network because most new issues are sold directly to institutional investors.
D)   new investment banking firms are being established to deal with the increasing number of companies looking for capital.

Question 6

Generally, the total cost to issue securities (as a percent of total proceeds)

Accepted Answer

A)   is greater for common stock than for debt and increases as the size of the issue increases.
B)   is greater for debt than for common stock and decreases as the size of the issue increases.
C)   is greater for debt than for common stock and increases as the size of the issue increases.
D)   is greater for common stock than for debt and decreases as the size of the issue increases.

Question 7

The market stabilization function usually

Accepted Answer

A)   is performed by the issuing company.
B)   lasts six to nine months.
C)   provides price support for the stock during the distribution period.
D)   is illegal.

Question 8

Generally, the larger amount of shares issued means that the spread percentage would be lower.

Accepted Answer

A) True 
 B)False

Question 9

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 10

The "best efforts" method of underwriting is the most common method used in issuances.

Accepted Answer

A) True 
 B)False

Question 11

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 12

Only a small amount of security issues are sold on a "best-efforts" basis.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following statements about secondary offerings is FALSE?

Accepted Answer

A)   Secondary offerings may occur when holders of large blocks of stock wish to sell too many shares for normal channels to handle.
B)   Secondary offerings occur after an IPO.
C)   Secondary offerings occur when an investment banker underwrites the sale of stock for existing stockholders, rather than for the company.
D)   There is a trend away from the use of secondary offerings.

Question 14

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 15

The investment banker may advise clients on a continuing basis about

Accepted Answer

A)   the types of securities being sold.
B)   the number of shares for distribution.
C)   the timing of the sale.
D)   all of these options are correct.

Question 16

Stock prices for Amazon and eBay managed to avoid the turbulent price movements that followed the collapse of the Internet bubble.

Accepted Answer

A) True 
 B)False

Question 17

Shelf registration requires the firm to file one comprehensive registration statement, which outlines the company's indefinite financial plan.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following activities is not a service provided by investment bankers?

Accepted Answer

A)   Underwriting initial public offerings
B)   Raising capital via mutual fund offerings
C)   Advising in mergers
D)   Advising on restructurings

Question 19

Newdex has net income of $3,000,000 (INCLUDING the effect of expected out-of-pocket costs)  and 1,000,000 shares outstanding. It needs to raise $5,000,000 in funds for a new asset. Its investment banker plans to sell an issue of common stock to the public for $40, less a spread of 10%. How much must Newdex's after-tax income increase by to prevent dilution of earnings per share?

Accepted Answer

A)   $40,000
B)   $416,667
C)   $350,000
D)   $375,000

Question 20

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.

Exam 15: Investment Banking: Public and Private Placement

Investment banking is changing dramatically into an industry where

Correct Answer
verified

The market stabilization function usually

Correct Answer
verified

Generally, the larger amount of shares issued means that the spread percentage would be lower.

Correct Answer
verified

Which of the following statements about secondary offerings is FALSE?

Correct Answer
verified

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

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

Stock prices for Amazon and eBay managed to avoid the turbulent price movements that followed the collapse of the Internet bubble.

Correct Answer
verified

Correct Answer
verified

The period of market stabilization usually lasts two or three days after the initial offering, but may extend up to 30 days for difficult-to-distribute securities.

Correct Answer
verified

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

Correct Answer
verified

Only a small amount of security issues are sold on a "best-efforts" basis.

Correct Answer
verified

Private placement eliminates the expensive and lengthy registration process with the Securities and Exchange Commission.

Correct Answer
verified

Shelf registration requires the firm to file one comprehensive registration statement, which outlines the company's indefinite financial plan.

Correct Answer
verified

The underwriting spread is the guaranteed minimum profit to an investment bank for each share distributed.

Correct Answer
verified

Dilution of earnings occurs because

Correct Answer
verified

Generally, the total cost to issue securities (as a percent of total proceeds)

Correct Answer
verified

The investment banker may advise clients on a continuing basis about

Correct Answer
verified

Which of the following activities is not a service provided by investment bankers?

Correct Answer
verified

The "best efforts" method of underwriting is the most common method used in issuances.

Correct Answer
verified

The risk function of investment banking is categorized mainly under

Correct Answer
verified

Exam 15: Investment Banking: Public and Private Placement

Investment banking is changing dramatically into an industry where

Correct AnswerverifiedShow Answer

The market stabilization function usually

Correct AnswerverifiedShow Answer

Generally, the larger amount of shares issued means that the spread percentage would be lower.

Correct AnswerverifiedShow Answer

Which of the following statements about secondary offerings is FALSE?

Correct AnswerverifiedShow Answer

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

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

Stock prices for Amazon and eBay managed to avoid the turbulent price movements that followed the collapse of the Internet bubble.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

The period of market stabilization usually lasts two or three days after the initial offering, but may extend up to 30 days for difficult-to-distribute securities.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Only a small amount of security issues are sold on a "best-efforts" basis.

Correct AnswerverifiedShow Answer

Private placement eliminates the expensive and lengthy registration process with the Securities and Exchange Commission.

Correct AnswerverifiedShow Answer

Shelf registration requires the firm to file one comprehensive registration statement, which outlines the company's indefinite financial plan.

Correct AnswerverifiedShow Answer

The underwriting spread is the guaranteed minimum profit to an investment bank for each share distributed.

Correct AnswerverifiedShow Answer

Dilution of earnings occurs because

Correct AnswerverifiedShow Answer

Generally, the total cost to issue securities (as a percent of total proceeds)

Correct AnswerverifiedShow Answer

The investment banker may advise clients on a continuing basis about

Correct AnswerverifiedShow Answer

Which of the following activities is not a service provided by investment bankers?

Correct AnswerverifiedShow Answer

The "best efforts" method of underwriting is the most common method used in issuances.

Correct AnswerverifiedShow Answer

The risk function of investment banking is categorized mainly under

Correct AnswerverifiedShow Answer

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