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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 221

Multiple Choice

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represent the best way for investors to have their investments managed by a trained specialist for a fee.

A) Individual stocks
B) Mutual funds
C) Corporate bonds
D) Government bonds

E) B) and D)
F) A) and D)

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Question 222

Multiple Choice

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Seattle Music, Inc. recently offered bonds for sale to the public. The unsecured corporate bond paid interest of 9% to investors for the twenty-year life of the bonds. Seattle Music is obligated to:

A) Represent each bondholder as an owner in the company.
B) Pay interest semi-annually.
C) Pay stockholders their dividends, before paying bondholders their interest.
D) Pay each owner their principal if and when they want to cash-in their investment.

E) B) and D)
F) A) and C)

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Question 223

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The number of U.S. companies that are listed on foreign stock exchanges is declining.

Tyrone owns shares of stock in New Jersey Power. His stock certificate states that any missed dividends will be paid prior to any future common stock dividend payments.

Each share of common stock provides the investor with a right that offers the investor the first right to purchase any new shares of common stock the firm decides to issue. This allows common stockholders to maintain a proportional share of ownership in the company.

The risk/return trade-off is inherent in any investment strategy. What are the five key criteria investors should consider when selecting investment options?

A callable bond allows a bondholder to exchange his/her bond for shares of common stock in the same corporation.

A(n) represents a condensed version of the registration statement that enables prospective investors to evaluate a stock for possible purchase.

A company's stock does not have to be listed on one of the major stock exchanges in order to trade. It can be traded on .

Interest rate on bonds is usually quoted as an annual rate, and paid:

Erica invests $5,000 in five ABC Corporation bonds that mature in ten years. Unexpectedly just the week after she invests, she has the opportunity to work abroad, which she has always wanted to do, but she needs cash. Which of the following most likely applies to Erica?

As market interest rates increase, the selling price for existing bonds also increases.

A corporate bond provides the owner with the right to sell the bond to other investors at any time during the life of the bond.

Issuing bonds to obtain long-term funds legally compels a firm to pay regular payments and repay the at the maturity date.

Interest represents the payment to bondholders for the use of their money.

Moody's Investor Service currently rates the Sasha Deal Corporation bonds as a C grade. This indicates that these bonds are: