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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 181

True/False

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Buying on margin is a relatively risk-free way of investing in the stock market.

A) True
B) False

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Question 182

Multiple Choice

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New investors may want to consider _______ funds,which are mutual funds that invest in one particular kind of stock or a particular kind of bond,or even stocks that are representative of the entire market.

A) international
B) index
C) global
D) relief

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

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Question 183

Multiple Choice

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Which of the following legislative acts created the Securities and Exchange Commission?

The investor always pays a fee when purchasing a share of a mutual fund.

The degree of risk in mutual fund investments remains nearly the same from one fund to the next.

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

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.

Mini-Case Penny Stock is the chairperson of Pirate Recording Company Inc.She is the person responsible for the tremendous growth this company has enjoyed over the past three years.It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli.These groups have generated profits of over $25 million. The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording.This incredible growth has delighted everyone at the company,but it has also created a major problem for Penny.Pirate Recording has never been a major player in the recording industry,primarily because of limited capital.In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment.The amount of new funds required to finance this needed expansion is $150 million.Penny has started to consult with others about how to finance this major expansion of the company. -Penny is impressed with contemporary high tech companies that have listed their stock on an electronic telecommunications network of securities dealers who trade the stock.She is referring to firms such as Microsoft [MSFT],Google [GOOG],and Apple [AAPL].Penny ideally would like her company's stock listed on the ___________.

Which of the following is not an important criterion to consider before investing?

When retained earnings are not enough to meet their long-term funding needs,businesses may be able to raise funds by:

How do investment bankers generate revenues for their firms?

When investment bankers underwrite an issue,they buy at a discounted price,the entire stock issue of a firm and then sell the stock,at full price,to private investors.

A margin call requires an investor to repay money borrowed from the broker used to purchase the stock.

Maureen owns 20% of the common stock of the Queen Bean Corporation.The company announced plans to offer an additional 10,000 shares of common stock for sale.If Maureen exercises her preemptive rights,Queen Bean must offer her the opportunity to purchase:

As a legal contract,bonds issued by different companies carry the same level of risk.

In an effort to profit from stock market trading,Chad landed a job with the ABC Corporation.Chad intends to use his position to obtain privileged information about his new employer that would not be available to the public.While Chad realizes that he may be benefiting unfairly,as an employee he is not acting illegally.

When investing in mutual funds,the investor will buy shares of a fund that consists of stocks or bonds,the fund will hold shares of many companies.

If investor Jones buys a share of stock in the ABC Corporation from investor Smith,the ABC Corporation automatically receives a fixed percentage of the selling price.

The ABC Corporation issues a $1,000 bond,with an interest rate of 10%,and a maturity date of 2015.This creates a liability for the ABC Corporation to pay the bondholder:

Through disciplined investing,Alyssa now owns 10% or 50,000 shares of a small biotech company.Although she has enjoyed a lot of control,she realizes that in order for the firm to acquire the funds to grow in a recessionary economy,it will need to issue more stock.Her regret is that it will dilute her ownership.