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FIN 620 QUIZ 3
Terms in this set (20)
Different classes of stock usually are issued to:
allow a certain group to maintain ownership control while reducing that group's equity position
Insider trading does not offer any advantages if the financial markets are:
strong form efficient
The market price of a stock tends to fluctuate throughout every trading day. This fluctuation is:
consistent with the semistrong form of the efficient market hypothesis because daily prices should adjust as new information becomes available.
Potential investors primarily obtain detailed information regarding a new issue by reading the:
Which one of these is a positive covenant?
the firm must maintain a current ratio of 1.2 or better
Lee started a firm which he recently took public with a new stock issue of 1 million shares. As the firm's founder he personally owns 1.2 million shares, all of which he owned prior to the new stock issue. The offer price of the IPO was $16 a share. The price paid to the firm was $14.20 a share and the closing price on the IPO date was $19 a share. How much of a loss did Lee personally experience due to the IPO's underpricing:
Number of shares×Loss per share
Hence, correct option is $3.6 million
The Wordsmith Corporation has 40,000 shares outstanding with a market price of $25 each. The firms expects to raise $200,000 via a rights offering at a subscription price of $20. How many rights must be submitted to acquire one new share?
New shares to be issued = 200000$/$20=10000 shares
No.of rights needed per share=40000/10000=4 rights.
So 4 rights to be submitted to get 1 share
If financial markets are efficient, then attempting to accurately predict interest rates is:
a waste of good time
If you excel in analyzing the future outlook of firms based on past performance, you would prefer that the financial markets be less than ____ form efficient so that you can have an advantage in the marketplace:
The written agreement between a corporation and its bondholders is called the:
Which one of the following is not one of the four main functions provided by underwriters:
auditing the financial statements
Stock market events in 1929, 1987, and 2008 are most apt to be used as examples in support of which one of these theories?
There are 3 directors' seats up for election. If you own 1,000 shares of stock and you can vote 1,000 votes in each of the three elections, then the firm uses the voting procedures referred to as:
Firms may prefer to issue cumulative preferred stock rather than debt for which reason?
If there is no current taxable income, preferred stock dividends are automatically voided
Which type(s) of dilution are relevant to a firm's shareholders when the firm's shares are issued with rights:
dilution of stock price per share
A firm commitment arrangement with an investment banker occurs when the:
investment banker buys the securities for less than the offering price and accepts the risk of not being able to sell them
Which one of these is an example of financially irrational behavior?
a firm issuing new shares when their managers feel the stock is overpriced
In an efficient market, the price of a security will:
react immediately to any new information that affects the value of the issuing firm
Which one of these terms is used to refer to short-term debt?
Suppose firms with unexpectedly high earnings earn abnormally high returns for several months after the earnings announcement. This would be evidence of:
inefficient markets in the semi-strong form
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