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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 41

Multiple Choice

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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.

A) participating
B) preemptive
C) cumulative
D) convertible

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

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Question 42

True/False

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Stock exchanges compete with each other for the listing of a corporation's stock.

A) True
B) False

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Question 43

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If a company announces a stock split,the investor may receive two or more shares of the company stock,for every one share that he/she holds.

Bondholders represent creditors of a firm.

The NASDAQ reports its own average that investors follow to observe trends in the market.

The largest one-day drop in the stock market occurred in 1987 - a 22% drop.

Sam Schiester,a stockbroker at Schemes Financial Services Company called you the other day asking if you would like to purchase an IPO."The hot new company,Hottie Potatee is going public,and I thought you might want to get in on it," he exclaimed.If you agree to buy shares of this company,this trade will occur on the secondary market.

On a mutual fund quotation,the Net Asset Value (NAV)= the number of persons who are investing in the fund.

As the largest economy in the world,the U.S.stock market is insulated from the effects of political events in the rest of the world.

Jennifer prefers corporate bonds as an investment option because investors always receive the face value of the bond whenever it is sold.

An executive secretary at a major investment banking firm is asked to copy documents that detail a major merger that's going to be finalized in the next two weeks.This merger will be a positive outcome for one of the companies in this deal.The secretary is thrilled to read about the merger,plans to call her broker immediately and buy stock in the company,and suggests that you should also act on her stock tip.Since you are not employed at her firm your purchase is legal.

When acquiring funds through the sale of a bond,the business incurs a legal obligation to pay regular interest payments.

The proceeds from a secondary market sale of securities go to the corporation whose security is being traded.

Prior to declaring a 4-for-1 stock split,Carbello Enterprises' stock sold for $44 a share.Immediately after the stock split,the value of a share of Carbello's stock should be ________ per share.

Maplewood Toy Company hopes to raise long-term capital by promising in writing to repay the principal provided by potential creditors in ten years.Additionally,the certificate issued by Maplewood promises to pay 5% interest annually for the ten year life of the security.Maplewood intends to issue:

Firms are at a disadvantage when issuing bonds because the interest rate that they must pay to bondholders is not tax deductible.

Cumulative preferred stockholders enjoy the first right to purchase any new shares of stock issued by the firm.

A ________ is a registered representative acting as an intermediary to buy and sell securities for clients.

The term ________ refers to investors who anticipate increases in stock prices.

Once a stock exchange agrees to list a company,the firm can be assured that it will always be listed by that exchange.