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Chapter 4 - Securities Markets
Chapter 4 - Securities Markets
The sale of a new issue of common stock of which there are already shares publicly held
is known as:
A)
an IPO.
B)
a secondary market issue.
C)
an EPO.
D)
a seasoned new issue.
Ans:
D
2.In an underwriting arrangement, the risk is assumed by the:
A)
issuer of the security
B)
investment bankers
C)
commercial bankers
D)
institutional investors
Ans:
B
A)
B)
C)
D)
Ans:
A)
B)
C)
D)
Ans:
5.A major appeal for U.S. firms selling bonds in the Euro market is:
A)
less regulation than in the U.S.
B)
lower bond yields than in the U.S.
C)
less competition than in the U.S.
D)
less price volatility than in the U.S.
Ans:
B
A)
B)
C)
D)
Ans:
A)
B)
C)
D)
Ans:
A)
B)
C)
D)
Ans:
9.NASDAQ stocks:
are generally foreign stocks.
trade via the Blue Sheets.
are not generally listed on organized exchanges.
represent less than 1,000 companies.
C
A)
B)
C)
D)
Page 2
Ans:
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A)
B)
C)
D)
Ans:
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C)
D)
Ans:
the S&P 500 is a market value index and the DJIA is no.
the S&P 500 is more stable than the DJIA.
C
30.Which of the following limits the usefulness of the S&P 500 Index as a market
benchmark?
A)
It is too weighted with NYSE stocks to be representative.
B)
It is too difficult to calculate for the average investor.
C)
Its use of a base year in its calculations affects its performance.
D)
Its performance can be greatly affected by a small number of stocks.
Ans:
D
31.A capitalization-weighted index obtains the current market value of each stock by:
A)
using the closing market price.
B)
multiplying price times shares outstanding.
C)
multiplying price times daily volume.
D)
dividing earnings by shares outstanding.
Ans:
B
32.Most secondary bond trading takes place on:
A)
the NYSE
B)
the American Stock Exchange
C)
the OTC
D)
the Philadelphia Exchange
Ans:
C
33.Treasury securities are bought and sold by the Federal Reserve in its:
A)
foreign exchange operations
B)
arbitrage operations
C)
discount window operations
D)
open market operations
Ans:
D
34.Most corporate bonds are traded in round lots of at least ________ bonds.
A)
100
B)
150
C)
200
D)
250
Ans:
D
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A)
B)
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Ans:
42.Smaller companies with fewer shares publicly held are more likely to meet the listing
requirements of the NYSE.
A)
True
B)
False
Ans:
B
43.Prices of stocks traded on the NYSE are determined through supply and demand.
A)
True
B)
False
Ans:
A
44.Orders on Nasdaq come from market makers, ECNs and on-line brokers.
A)
True
B)
False
Ans:
A
45.All OTC stocks are included in the Nasdaq.
A)
True
B)
False
Ans:
B
46.By 2005, program trading accounted for over 70 percent of total NYSE volume.
A)
True
B)
False
Ans:
B
47.ECNs offer the advantages of automation, lower costs and anonymity to its members.
A)
True
B)
False
Ans:
A
48.Normal stock exchange hours are 9:30 a.m. to 4 p.m.
A)
True
B)
False
Ans:
A
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49.The Dow Jones averages handle stock splits by adjusting the market value of the stocks.
A)
True
B)
False
Ans:
B
50.A movement of 30 points in the DJIA results in an average movement in the DJIA stocks
of about 13 cents.
A)
True
B)
False
Ans:
A
51.What is the difference between a seasoned new issue and an initial public offering?
Ans:
A seasoned new issue is the sale of a publicly traded company while an IPO
represents the first time an issuer has sold securities.
52.What are the major advantages of a private placement for the issuer of securities?
Ans:
The issuer avoids SEC registration, which saves time. In addition, investment
banker fees are normally avoided, since they are not typically used in private
placements.
53.What are the major similarities and differences between a specialist and a dealer?
Ans:
Both have their own inventory of selected securities and both can make a profit (or
loss) from the trades made from their own inventory. However, the specialist does
not set the security's price as the dealer does. In addition, the specialist operates on
the exchanges while the dealer operates on the OTC market.
54.What factors does the NYSE consider important in determining if a company should be
listed on the exchange?
Ans:
The exchange pays close attention to the degree of national interest in the company,
its relative position and stability in the industry, and its prospects for maintaining
relative position.
55.What is the Nasdaq National Market System?
Ans:
The Nasdaq/NMS, which is a component of the Nasdaq market, is a combination of
the competing market makers in OTC stocks and the up- to-the-minute reporting of
trades.
56.What are the four Dow Jones averages?
Ans:
The Dow-Jones Industrial Average, the Dow-Jones Transportation Average, the
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Page 10
stock
ABC
XYZ
price
$55
$32
X #shares
Market value
1 million = $55,000,000
4 million = 128,000,000
183,000,000
2006
stock
ABC
XYZ
price
$29
$35
X #shares
2 million =
4 million =
198,000,000
183,000,000
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Market value
$58,000,000
140,000,000
198,000,000
X 100 = 1.082 X 100 = 108.2