Capital Market MCQ Questions and Answers for Practice

1. Letter stock is

1. a handwritten certificate representing a corporate IOU.
2. a mass mailing offering a security for sale.
3. securities issued by the United States Postal Service.
4. privately placed common stock that cannot be immediately resold to the general public.

2. A preliminary prospectus is known as a

1. golden parachute.
2. red herring.
3. blue sky.
4. green shoe.

3. If an investment banker has agreed to sell a new issue of securities on a best-efforts basis, the issue

1. most likely involves an unusually large stock offering.
2. most likely involves bonds instead of common stock.
3. results in no assumption of underwriting risk by the investment banker.
4. most likely involves a well-established, large company.

4. The actual market value of a right will differ from its theoretical value for all of the following reasons EXCEPT for:

1. the size of the firms marginal tax rate.
2. the amount of transactions costs incurred.
3. investor speculation.
4. the irregular exercise and sale of rights over the subscription period.

5. In a common stock rights offering the subscription price is generally:

1. set equal to the current market price of the stock.
2. set below the current market price of the stock.
3. set above the current market price of the stock.
4. set after the stock goes ex-rights.

6. When the investment banker bears the risk of not being able to sell a new security at the established price, this is known as:

1. a best efforts offering.
2. underwriting.
3. shelf registration.
4. making a market.

7. To say that there is asymmetric information in the issuing of common stock or debt means that

1. investors have nearly perfect information.
2. the markets have nearly perfect information.
3. investors have more accurate information than management has.
4. management has more accurate information than investors have.

8. In calculating the value of one right when the stock is selling rights-on, the analyst needs to know the number of rights needed to buy one share of stock and:

1. the subscription price per share.
2. the transactions costs involved.
3. the price-earnings ratio of the firms stock.
4. the length of the rights offering period.

9. A best efforts offering is sometimes used in connection with a ................. of new, long-term securities.

1. private placement
2. privileged subscription
3. public issue
4. all of the above

10. ............. permits what is known as a shelf registration.

1. SEC Rule 144
2. SEC Rule 144a
3. SEC Rule 415
4. SEC Form 13D

11. A company can ensure the complete success of a rights offering by making use of a

1. standby arrangement.
2. oversubscription privilege.
3. green shoe provision.
4. shelf registration.

12. Financial intermediaries .........

1. do not invest in new long-term securities
2. include insurance companies and pension funds
3. include the national and regional stock exchanges
4. are usually underwriting syndicates

13. The Sarbanes-Oxley Act of 2002 (SOX) was largely a response to:

1. a series of corporate and accounting frauds involving Enron, Arthur Andersen, WorldCom, and numerous others.
2. a dramatic rise in the US trade deficit.
3. charges of excessive compensation to top corporate executives.
4. rising complaints by investors and security analysts over the financial accounting for stock options.

14. Because of US Securities Offering Reform ............. can take advantage of a special streamlined shelf registration process that provides for automatic effectiveness of a registration statement upon filing with the SEC (i.e., no SEC review).

1. only unseasoned issuers
2. only seasoned issuers
3. only well-known seasoned issuers (WKSIs)
4. only seasoned issuers and well-known seasoned issuers (WKSIs)