1- A corporation's first sale of equity made available to the public is called a(n): A) Share repurchase program. B) Shelf registration filing. C) Private placement. D) Seasoned equity offering (SEO). E) Initial public offering (IPO).
2- The contract provision whereby the underwriting syndicate may, at their option, purchase additional securities from the issuing corporation at the initial offering price is called (the) : A) Regulation A. B) Red herring provision. C) Green Shoe provision. D) Best efforts option. E) Direct rights option.
3- Which of the following is/are important in choosing a venture capitalist? I. The financial strength of the venture capitalist. II. References regarding how successful the venture capitalist has been in the past. III. The venture capitalist's exit strategy. A) I only B) I and III only C) I and II only D) II and III only E) I, II, and III
4- Which of the following is true about underwriting securities?
A) The issuing firm, not the underwriter, bears all the risk from adverse price movements in a firm commitment sale.
B) The method of marketing securities to the public is usually specified by the issuing firm, not the underwriter. C) The issuing firm, not the underwriter, will generally set the price for the offering.
D) The spread earned by the underwriter is the difference between the price the underwriter pays for the security and the offering price of the security.
E) It is common for a number of underwriters to form a syndicate so that the risk in marketing a security issue falls on the lead underwriter.
5- Which of the following is true if new shares are sold at an offering price that is too low? (Assume a firm commitment offering.)
A) Underwriters suffer a financial loss because they are less likely to be able to sell all of the shares offered. B) Markets in general suffer because this is a misallocation of scarce resources.
C) Investors in general suffer a financial loss because they purchase shares at a price less than their true value.
D) Investors in general suffer because the more underpriced offerings there are, the less likely additional IPOs will follow.
E) The shareholders of the issuing firm suffer an opportunity loss because shares were sold at less than their true value.
6- Which one of the following statements concerning a prospectus is correct? A) The purpose of a prospectus is to provide information to potential investors. B) The preliminary prospectus, or red herring, must contain the price at which the security will be issued. C) The prospectus generally does NOT discuss the use of the funds raised by the offering. D) The prospectus shows the minimum expected return investors should expect from an investment in the offered shares. E) A prospectus is not required if the offering is only for debt securities.
7- The option to purchase shares of newly issued stock in order to maintain your current ownership percentage is done: A) By placing a subscription agreement with the lead underwriter. B) By placing a standing order with your personal broker to buy shares at the offer price. C) Through a rights offering as set forth by the preemptive rights provision in the articles of incorporation. D) Through an options process as agreed to by the shareholders in a special proxy vote. E) Through the transfer agent as set forth in the Green Shoe provision of the articles of incorporation.
8- A publicly traded firm has decided to issue 1 million new shares of common stock at the current market price of $10 per share. An underwriting syndicate pays the firm $9.3 million for the entire issue and then markets the shares at $10 each. This is an example of a(n): A) Indirect cost. B) Lock-up agreement pricing. C) Firm commitment underwriting. D) A best-efforts underwriting. E) An underpricing situation.
9- Which of the following is NOT a type of dilution that may be associated with…