Question 1

A rights offering ensures that current shareholders may maintain their proportionate equity interest in the corporation.

Accepted Answer

A) True 
 B)False

Question 2

Rule 415 is popularly referred to as the closet registration rule because the securities can be viewed as sitting in the "closet," and can be taken out of the closet and sold to the public without obtaining additional SEC approval.

Accepted Answer

A) True 
 B)False  False

Question 3

A red herring is ________.

Accepted Answer

A)   a period of waiting for SEC approval.
B)   an amended prospectus.
C)   a preliminary prospectus.
D)   a prospectus printed fully in red ink.E) A) and C)
F) A) and B)

Question 4

Which of the below statements is TRUE?

Accepted Answer

A)   The filing of a registration statement with the SEC means that the security can be offered to the public.
B)   When the SEC declares the registration statement is "effective," it means that an amendment to the registration statement can be filed.
C)   The registration statement must be reviewed and approved by the SEC's Division of Corporate Finance before a public offering can be made.
D)   The approval of the SEC means that the securities have investment merit or are properly priced or that the information is accurate.E) A) and D)
F) None of the above

Question 5

In regards to Rule 144a, which of the below statements is FALSE?

Accepted Answer

A)   Rule 144A encouraged non-U.S. corporations to issue securities in the U.S. private placement market by relaxing the requirement to hold the securities for two years.
B)   Rule 144A encourages non-U.S. corporations to issue securities in the U.S. private placement market by relaxing the requirement to furnish necessary disclosure set forth by U.S. securities laws.
C)   Rule 144A improved liquidity, reducing the cost of raising funds.
D)   Rule 144A improved the liquidity of securities acquired by all institutional investors in a private placement.E) A) and C)
F) A) and B)

Question 6

An investment banker may merely act as an advisor and/or distributor of the new security. The function of buying the securities from the issuer is called ________.

Accepted Answer

A)   advising.
B)   distributing.
C)   purchasing.
D)   underwriting.E) A) and B)
F) None of the above

Question 7

A corporation can offer existing shareholders new shares in a preemptive rights offering, and using a standby underwriting arrangement, the corporation can have an investment banking firm agree to distribute any shares not subscribed to.

Accepted Answer

A) True 
 B)False  True

Question 8

Investment banking firms assist in the private placement of securities by ________.

Accepted Answer

A)   working with the issuer and potential investors on the design and pricing of the security.
B)   lining up the investors but not designing or pricing the issue.
C)   designing the issue but not lining up the investors or pricing the issue.
D)   participating in the transaction on a fixed efforts underwriting arrangementE) All of the above
F) A) and B)

Question 9

The registration is actually divided into two parts. Part I is the ________. It is this part that is typically distributed to the public as an offering of the securities. Part II contains ________, which is not distributed to the public as part of the offering but is available from the SEC upon request.

Accepted Answer

A)   registration; additional information
B)   prospectus; supplemental information
C)   supplemental information; registration
D)   beginning information; prospectusE) None of the above
F) A) and D)

Question 10

When all bidders buy the amount allocated to them, then the auction is referred to ________.

Accepted Answer

A)   as a multiple-price auction or a Dutch auction.
B)   as a single-price auction or a German auction.
C)   as a single-price auction or a Dutch auction.
D)   as a multiple-price auction or a German auction.E) B) and C)
F) A) and C)

Question 11

The Securities Act of 1933 ________.

Accepted Answer

A)   does not provide for penalties in the form of fines and/or imprisonment if the information provided is inaccurate or material information is omitted.
B)   governs the issuance of securities.
C)   provides that investors who purchase the security are entitled to sue the issuer but not the underwriter to recover damages if they incur a loss as a result of the misleading information.
D)   provides that financial statements must be included after the registration statement.E) All of the above
F) A) and D)

Question 12

In 1982, the SEC adopted Regulation D,which ________.

Accepted Answer

A)   exempts securities sold only within a state.
B)   states that if the offering is for $1 million or less, the securities need not be registered
C)   sets forth the guidelines that determine if an issue is qualified for exemption from registration.
D)   exempts from registration "transactions by an issuer not involving any public offering."E) A) and B)
F) A) and C)

Question 13

In April 1990, the SEC Rule 144A became effective and ________.

Accepted Answer

A)   eliminated the five-year holding period by permitting large institutions to trade securities acquired in a private placement among themselves by registering these securities with the SEC.
B)   eliminated the two-year holding period by disallowing large institutions to trade securities acquired in a private placement among themselves without having to register these securities with the SEC.
C)   eliminated the two-year holding period by permitting large institutions to trade securities acquired in a private placement among themselves without having to register these securities with the SEC.
D)   added the two-year holding period by permitting small institutions to trade securities acquired in a public placement among themselves without having to register these securities with the SEC.E) A) and B)
F) A) and C)

Question 14

Demonstrate how a rights offering works. In your illustration, demonstrate the effect on the economic wealth of shareholders and how the terms affect an issuer's need for an underwriter.

Accepted Answer

To demonstrate how a rights offering wor...

Question 15

Suppose that an issuer is offering $600 million of a bond issue, and nine bidders submit the following yield bids: 
Which of the below statements is FALSE?

Accepted Answer

A)   The first five bidders (A, B, C, D, and 
E)   will be allocated the amount for which they bid because they submitted the lowest-yield bids. In total, they will receive $595 million of the $600 million to be issued.
B)   After allocating $420 million to the highest three bidders, then $180 million can be allocated to the next two highest bidders.
C)   The lowest bidders will receive an amount proportionate to the amount for which they bid.
D)   After allocating $595 million to the highest bidders, then $5 million can be allocated to the next lowest bidders.E) All of the above
F) A) and B)

Question 16

An offering of a new security cannot be made by means of an auction process.

Accepted Answer

A) True 
 B)False

Question 17

In addition to the number of rights and the subscription price, there are two other elements of a rights offering that are important. Name and briefly describe these two elements.

Accepted Answer

The first element is the choice to trans...

Question 18

The ________ involves the distribution to investors of newly issued securities by central governments, its agencies, municipal governments, and corporations

Accepted Answer

A)   OTC market
B)   secondary market
C)   primary market
D)   stock marketE) A) and B)
F) A) and C) C

Question 19

A consequence of ________ is that underwriting firms need to expand their capital so that they can commit greater amounts of funds to such deals.

Accepted Answer

A)   accepting auction deals
B)   rejecting bought deals
C)   accepting bought deals
D)   rejecting auction dealsE) All of the above
F) A) and B)

Question 20

Depending on the type of underwriting agreement, the underwriting function may expose the investment banking firm to the risk of selling the securities to the public at a price greater than the price paid to the issuer.

Accepted Answer

A) True 
 B)False

Exam 13: Primary Markets and the Underwriting of Securities

A rights offering ensures that current shareholders may maintain their proportionate equity interest in the corporation.

Correct AnswerverifiedShow Answer

Rule 415 is popularly referred to as the closet registration rule because the securities can be viewed as sitting in the "closet," and can be taken out of the closet and sold to the public without obtaining additional SEC approval.

Correct AnswerverifiedFalse

A red herring is ________.

Correct AnswerverifiedShow Answer

Which of the below statements is TRUE?

Correct AnswerverifiedShow Answer

In regards to Rule 144a, which of the below statements is FALSE?

Correct AnswerverifiedShow Answer

An investment banker may merely act as an advisor and/or distributor of the new security. The function of buying the securities from the issuer is called ________.

Correct AnswerverifiedShow Answer

A corporation can offer existing shareholders new shares in a preemptive rights offering, and using a standby underwriting arrangement, the corporation can have an investment banking firm agree to distribute any shares not subscribed to.

Correct AnswerverifiedTrue

Investment banking firms assist in the private placement of securities by ________.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

When all bidders buy the amount allocated to them, then the auction is referred to ________.

Correct AnswerverifiedShow Answer

The Securities Act of 1933 ________.

Correct AnswerverifiedShow Answer

In 1982, the SEC adopted Regulation D,which ________.

Correct AnswerverifiedShow Answer

In April 1990, the SEC Rule 144A became effective and ________.

Correct AnswerverifiedShow Answer

Demonstrate how a rights offering works. In your illustration, demonstrate the effect on the economic wealth of shareholders and how the terms affect an issuer's need for an underwriter.

Correct AnswerverifiedTo demonstrate how a rights offering wor...View AnswerShow Answer

Suppose that an issuer is offering $600 million of a bond issue, and nine bidders submit the following yield bids: Which of the below statements is FALSE?

Correct AnswerverifiedShow Answer

An offering of a new security cannot be made by means of an auction process.

Correct AnswerverifiedShow Answer

In addition to the number of rights and the subscription price, there are two other elements of a rights offering that are important. Name and briefly describe these two elements.

Correct AnswerverifiedThe first element is the choice to trans...View AnswerShow Answer

The ________ involves the distribution to investors of newly issued securities by central governments, its agencies, municipal governments, and corporations

Correct AnswerverifiedC

A consequence of ________ is that underwriting firms need to expand their capital so that they can commit greater amounts of funds to such deals.

Correct AnswerverifiedShow Answer

Depending on the type of underwriting agreement, the underwriting function may expose the investment banking firm to the risk of selling the securities to the public at a price greater than the price paid to the issuer.

Correct AnswerverifiedShow Answer

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False

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True

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To demonstrate how a rights offering wor...
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The first element is the choice to trans...
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C

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