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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 151

Multiple Choice

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The Securities and Exchange Commission has accused Martha of benefiting unfairly from information secured from a corporate officer of Stewart Engineering.Because Martha used that information to profit in the stock market,she faces ________ charges.

A) insider trading
B) security tampering
C) corporate fraud
D) short selling

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Question 152

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Securities markets provide private investors a place to buy and sell stocks,bonds,and mutual funds.

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Question 153

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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.

Mini-Case Penny Stock is the chairperson of Pirate Recording Company Inc.She is the person responsible for the tremendous growth this company has enjoyed over the past three years.It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli.These groups have generated profits of over $25 million. The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording.This incredible growth has delighted everyone at the company,but it has also created a major problem for Penny.Pirate Recording has never been a major player in the recording industry,primarily because of limited capital.In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment.The amount of new funds required to finance this needed expansion is $150 million.Penny has started to consult with others about how to finance this major expansion of the company. -One funding source under consideration is the issuance of $150 million worth of corporate bonds.A financial advisor predicted that in order for the fast growing company to attract investors,it would have to put up collateral to back-up the bond issue.The type of bond the financial advisor suggests is:

The Thinking Green box,titled,"Investing with Integrity" features SRIs,where mutual fund managers let you recycle your shares in a fund.If you don't like your investment,you send it back and receive shares in another fund.

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

Common stock and corporate bonds represent the two types of equity financing available to a firm.

The risk associated with Firm A's bond is greater than the risk of Firm B's bond.All other things being equal,investors would be willing to pay ________ for Firm B's bond.

Demonte owns 600 shares in the Kentucky Bluegrass Corporation and he just received notice that the firm declared a three-for-one stock split.After the split,Demonte will own _______ shares in the firm.

Normally,the higher the risk associated with a bond issue,the higher the interest rate the organization must offer potential investors.

When stock prices decline steadily,investors refer to the market as a ________ market.

When an investor places a buy order with a stockbroker,the broker contacts a(n) __________ to complete the transaction.

Maureen owns 20% of the common stock of the Queen Bean Corporation.The company announced plans to offer an additional 10,000 shares of common stock for sale.If Maureen exercises her preemptive rights,Queen Bean must offer her the opportunity to purchase:

Another term for portfolio strategy is:

Small investors can spread the risk of investing by purchasing shares of mutual funds or ETFs.

Creating a portfolio by buying several different types of investments to spread the risk of investing is called _______________.

Moody's Investor Service currently rates the Sasha Deal Corporation bonds as a C grade.This indicates that these bonds are:

When an investor purchases a security,the investor does so with the expectation of:

Jason instructed his stockbroker to buy 100 shares of Utah Industries common stock if and when the price falls to $25 per share.Jason placed a(n) :

Exchange Traded Funds are like mutual funds because these funds permit the investor to buy shares of a collection of several stocks or shares of a collection of stocks and bonds,but,unlike mutual funds,they are traded during the day on the exchanges.