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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 91

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Only government employees represent institutional investors.

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Question 92

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The disadvantages of selling stock to obtain long-term financing include:

A) the legal obligation to pay dividends if the company is profitable.
B) the funds contributed by stockholders must be repaid from after tax profits.
C) a reduction in the market value of the firm's products.
D) a possible change in management and policies in the company.

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Question 93

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Diversification involves buying several different investment alternatives to spread the risk of investing.

A stock exchange provides a marketplace where the public can directly buy and sell securities without the help of intermediaries.

Laura read about Living Longer Biotechnology, Inc. and wants to buy 100 common shares at $45 per share. Unfortunately, she only has $3000 available to invest. One risky strategy Laura could consider is:

Hottie Potatee, Inc. wants to raise an undisclosed amount of funds in order to expand the company-owned potato bar stores overseas. The CFO (Chief Financial Officer) of the company will negotiate with an expert at the FTC (Federal Trade Commission) who will underwrite the issue of stock that Hottie Potatee plans to offer.

If the firm should find itself in bankruptcy, preferred stockholders would have claim to the value of any remaining assets before common stockholders.

Which of these represents a special feature included with some bond issues?

Most investment advisors put mutual funds high on the list of recommended investments for experienced investors, but consider them too risky for beginning investors.

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

An investor places a order with a broker to buy a particular stock at a specific price, if and when that price becomes available.

A bond sold with a sinking fund provision requires the firm to allow a stockholder to exchange his/her bond for a specified number of shares of common stock.

The primary market allows an investor to purchase financial securities from other investors.

The bonds' call provision was 2012. If interest rates go down to 4.5% in the year 2012, Bellandro Bay is not likely to call in this bond issue.

Bondholders can sell their bonds:

When given a choice, businesses prefer to obtain long-term financing through retained earnings or by borrowing from a lending institution such as a bank.

Which of the following accurately describes an advantage of selling bonds to raise long-term capital?

Regis and Kathy plan to invest in corporate securities. While Regis plans to retire next year on his 65th birthday, Kathy is celebrating her first job after college and her 22nd birthday. Which of the two investors would be well advised to choose a more conservative investment strategy?

The similarities between common stocks and bonds include a face or par value and a fixed rate of return for investors.

In an attempt to lower their investment risk, investors prefer to buy a company's bond rather than the stock of the same firm.