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

2.Apreliminary prospectusis known as agolden parachute.red herring.blue sky.green shoe.

3.If an investment banker has agreed to sell a new issue of securities on abest-efforts basis, the issuemost likely involves an unusually large stock offering.most likely involves bonds instead of common stock.results in no assumption of underwriting risk by the investment banker.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 reasonsEXCEPTfor:the size of the firm's marginal tax rate.the amount of transactions costs incurred.investor speculation.the irregular exercise and sale of rights over the subscription period.

5.In a common stock rights offering the subscription price is generally:set equal to the current market price of the stock.set below the current market price of the stock.set above the current market price of the stock.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:a best efforts offering.underwriting.shelf registration.making a market.

7.To say that there is "asymmetric information" in the issuing of common stock or debt means thatinvestors have nearly perfect information.the markets have nearly perfect information.investors have more accurate information than management has.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:the subscription price per share.the transactions costs involved.the price-earnings ratio of the firm's stock.the length of the rights offering period.

9.Abest efforts offeringis sometimes used in connection with aof new, long-term securities.private placementprivileged subscriptionpublic issueall of the above

10.permits what is known as ashelf registration.SEC Rule 144SEC Rule 144aSEC Rule 415SEC Form 13D

11.A company can ensure the complete success of arights offeringby making use of astandby arrangement.oversubscription privilege.green shoe provision.shelf registration.

12.The market price of K-T-Lew Corporation's common stock is $60 per share, and each share gives its owner one subscription right. Four rights are required to purchase an additional share of common stock at the subscription price of $54 per share. If the common stock is currently selling "rights-on," the theoretical value of a right is closest to$0.96$1.20$1.50$6.00

13.(See Question 12 above.) The theoretical value of one share of K-T-Lew common stock when it goes "ex-rights" is closest to$54.00$58.50$58.80$59.04

14.Financial intermediaries.do not invest in new long-term securitiesinclude insurance companies and pension fundsinclude the national and regional stock exchangesare usually underwriting syndicates

15.The Sarbanes-Oxley Act of 2002 (SOX) was largely a response to:a series of corporate and accounting frauds involving Enron, Arthur Andersen, WorldCom, and numerous others.a dramatic rise in the US trade deficit.charges of excessive compensation to top corporate executives.rising complaints by investors and security analysts over the financial accounting for stock options.The following item is NEW to the 13th edition.

16.Because of US "Securities Offering Reform"can take advantage of a special streamlined "shelf registration" process that provides for automatic effectiveness of a reg+istration statement upon filing with the SEC (i.e., no SEC review).only unseasoned issuersonly seasoned issuersonly well-known seasoned issuers (WKSIs)only seasoned issuers and well-known seasoned issuers (WKSIs)

1.CorrectThe preliminary prospectus, which has a statement on its cover that the registration statement has not yet become effective, is referred to as a (an) __________.Your answer:red herring

2.CorrectA market where new securities are bought and sold for the first time is known as a __________ market.
Your answer:primary

3.CorrectA market for existing (used) securities, such as the NYSE or AMEX, rather than new issues is known as the __________ market.Your answer:secondary

4.CorrectA market for relatively long-term (greater than one year original maturity) financial instruments (e.g., bonds and stocks) is known as the __________ market. Your answer:capital.

5.CorrectWhich securities law requires that public offerings be registered with the federal government before they are sold? Your answer:Securities Exchange Act of 1933

6.CorrectWhich securities law regulates the secondary market for long-term securities already outstanding?
Your answer:Securities Exchange Act of 1934.

7.CorrectAn arrangement with a single investment banker or group of investment bankers to "stand by " and be ready to underwrite any unsold portion of an issue, is referred to as a (an) __________.
Your answer:standby arrangement

8.CorrectWhich securities law(s) is (are) involved with state laws regulating the offering and sale of securities?
Your answer:Blue Sky Laws

9.CorrectWhich of the following is privately placed common stock that cannot be immediately resold?
Your answer:Letter stock.

10.CorrectWhich of the following is a short-term option to buy a certain number of securities from the issuing corporation? Your answer:Right

11.CorrectWhich of the following statements is correct regarding asymmetric information?
Your answer:This occurs when one party, say management, has better information than another party, say investors, about relevant information to each party.

12.CorrectA temporary combination of investment banking firms formed to sell a new security issue, can be referred to as a (an) __________. Your answer:underwriting syndicate

13.CorrectWhat happens, according to the text, to the average common stock price immediately after the announcement of a new equity issue by a publicly traded firm? Your answer:The average stock price decreases a few percentage points.

14.CorrectThe New York Stock Exchange (NYSE) can be considered as being a part of the __________ and the __________. Your answer:secondary market for long-term securities; capital market

15.CorrectWhich of the following is not a method a firm can use to publicly issue common stock?
Your answer:Private placement.

16.CorrectWhich of the following is not a method a firm can use to finance their long-term needs externally?
Your answer:Retained earnings.

17.CorrectHow are investment bankers generally compensated under traditional underwriting?
Your answer:Investment bankers earn a spread based on the difference between the purchase price from the firm and the sales price to investors of the securities being underwritten.

18.CorrectIf the market price of a stock "rights-on " is $50 a share, the subscription price is $40 a share, and it takes nine rights to buy an additional share of common stock, the theoretical value of a right when the stock is selling "rights-on " is how much? Your answer:$1.00

19.CorrectThe __________ is a disclosure document filed with the SEC in order to register a new security and includes the prospectus and other SEC required information. Your answer:registration statement