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1、wordFoundations of Financial Markets and Institutions, 4e (Fabozzi/Modigliani/Jones)Chapter 13 Primary Markets and the Underwriting of SecuritiesMultiple Choice Questions1 The Traditional Process for Issuing New Securities1) The _ involves the distribution to investors of newly issued securities by
2、central governments, its agencies, municipal governments, and corporationsA) OTC marketB) secondary marketC) primary marketD) stock marketAnswer: CDiff: 1Topic: 13.1 The Traditional Process for Issuing New SecuritiesObjective: 13.1 the role investment bankers play in the distribution of newly issued
3、 securities2) The participants in the marketplace that work with issuers to distribute newly issued securities are called investment bankers. Investment banking is performed by two groups: _.A) mercial banks and securities houses.B) hometown banks and securities houses.C) mercial banks and bank hous
4、es.D) savings & loans and bank houses.Answer: ADiff: 2Topic: 13.1 The Traditional Process for Issuing New SecuritiesObjective: 13.1 the role investment bankers play in the distribution of newly issued securities3) The traditional process in the United States for issuing new securities involves inves
5、tment bankers performing up to three functions. Which of the below is NOT one of these functions?A) One function is advising the issuer on the terms and the timing of the offering.B) One function is selling the securities to the issuer.C) One function is distributing the issue to the public.D) One f
6、unction is buying the securities from the issuer.Answer: Bment: The traditional process in the United States for issuing new securities involves investment bankers performing one or more of the following three functions:(1) advising the issuer on the terms and the timing of the offering,(2) buying t
7、he securities from the issuer, and(3) distributing the issue to the public.Diff: 1Topic: 13.1 The Traditional Process for Issuing New SecuritiesObjective: 13.1 the role investment bankers play in the distribution of newly issued securities4) An investment banker may merely act as an advisor and/or d
8、istributor of the new security. The function of buying the securities from the issuer is called _.A) advising.B) distributing.C) purchasing.D) underwriting.Answer: DDiff: 2Topic: 13.1 The Traditional Process for Issuing New SecuritiesObjective: 13.1 the role investment bankers play in the distributi
9、on of newly issued securities5) An _ is a mon stock offering issued by panies that have NOT previously issued mon stock to the public.A) initial private issuance (IPI)B) seasoned equity offering (SEO)C) initial public offering (IPO)D) seasoned offering (SO)Answer: CDiff: 1Topic: 13.1 The Traditional
10、 Process for Issuing New SecuritiesObjective: 13.1 the role investment bankers play in the distribution of newly issued securities6) Which of the below statements is FALSE?A) A secondary mon stock offering is an offering of mon stock that had been issued in the past by the corporation.B) For a secon
11、dary offering, the range for the gross spread as a percentage of the amount raised is between 3% and 6%.C) For traditional bond offerings, the gross spread as a percentage of the principal is around 100 basis points.D) The typical underwritten transaction involves so much risk of capital loss that a
12、 single investment banking firm undertaking it alone would be exposed to the danger of losing a significant portion of its capital.Answer: Cment: For traditional bond offerings, the gross spread as a percentage of the principal is around 50 basis points.Diff: 2Topic: 13.1 The Traditional Process for
13、 Issuing New SecuritiesObjective: 13.2 the risk associated with the underwriting of a security2 Regulation of the Primary Market1) Underwriting activities are regulated by the _.A) Initial Public Offerings Market (IPOM).B) Securities and Exchange mission (SEC).C) Investment Banking Industry (IBI).D)
14、 Federal Bureau of Investigation (FBI).Answer: ADiff: 1Topic: 13.2 Regulation of the Primary MarketObjective: 13.4 how the SEC regulates the distribution of newly issued securities2) The type of information contained in the registration statement includes _.A) the nature of the business of the issue
15、r and key provisions or features of the security.B) the nature of the investment risks associated with the security and the background of management.C) the nature of the business of the issuer and the background of management.D) All of theseAnswer: Dment: The type of information contained in the reg
16、istration statement is the nature of the business of the issuer, key provisions or features of the security, the nature of the investment risks associated with the security, and the background of management.Diff: 2Topic: 13.2 Regulation of the Primary MarketObjective: 13.5 what a registration statem
17、ent is3) The registration is actually divided into two parts. Part I is the _. It is this part that is typically distributed to the public as an offering of the securities. Part II contains _, which is not distributed to the public as part of the offering but is available from the SEC upon request.A
18、) registration; additional informationB) prospectus; supplemental informationC) supplemental information; registrationD) beginning information; prospectusAnswer: BDiff: 2Topic: 13.2 Regulation of the Primary MarketObjective: 13.5 what a registration statement is4) The Securities Act of 1933 _.A) doe
19、s not provide for penalties in the form of fines and/or imprisonment if the information provided is inaccurate or material information is omitted.B) governs the issuance of securities.C) provides that investors who purchase the security are entitled to sue the issuer but not the underwriter to recov
20、er damages if they incur a loss as a result of the misleading information.D) provides that financial statements must be included after the registration statement.Answer: Bment: The Securities Act of 1933 governs the issuance of securities. The act requires that a registration statement be filed with
21、 the SEC by the issuer of a security. Financial statements must be included in the registration statement, and they must be certified by an independent public accountant. The act provides for penalties in the form of fines and/or imprisonment if the information provided is inaccurate or material inf
22、ormation is omitted. Moreover, investors who purchase the security are entitled to sue the issuer to recover damages if they incur a loss as a result of the misleading information. The underwriter may also be sued if it can be demonstrated that the underwriter did not conduct a reasonable investigat
23、ion of the information reported by the issuer. One of the most important duties of an underwriter is to perform due diligence.Diff: 2Topic: 13.2 Regulation of the Primary MarketObjective: 13.4 how the SEC regulates the distribution of newly issued securities5) Which of the below statements is TRUE?A
24、) The filing of a registration statement with the SEC means that the security can be offered to the public.B) When the SEC declares the registration statement is effective, it means that an amendment to the registration statement can be filed.C) The registration statement must be reviewed and approv
25、ed by the SECs Division of Corporate Finance before a public offering can be made.D) The approval of the SEC means that the securities have investment merit or are properly priced or that the information is accurate.Answer: Cment: The filing of a registration statement with the SEC does not mean tha
26、t the security can be offered to the public. The registration statement must be reviewed and approved by the SECs Division of Corporate Finance before a public offering can be made. Typically, the staff of this division will find a problem with the registration statement. The staff then sends a lett
27、er of ments or deficiency letter to the issuer explaining the problem it has encountered. The issuer must remedy any problem by filing an amendment to the registration statement. If the staff is satisfied, the SEC will issue an order declaring that the registration statement is effective, and the un
28、derwriter can solicit sales. The approval of the SEC, however, does not mean that the securities have investment merit or are properly priced or that the information is accurate. It merely means that the appropriate information appears to have been disclosed.Diff: 3Topic: 13.2 Regulation of the Prim
29、ary MarketObjective: 13.5 what a registration statement is6) A red herring is _.A) a period of waiting for SEC approval.B) an amended prospectus.C) a preliminary prospectus.D) a prospectus printed fully in red ink.Answer: Cment: During the waiting period, the SEC does allow the underwriters to distr
30、ibute a preliminary prospectus. Because the prospectus has not bee effective, its cover page states this in red ink and, as a result, the preliminary prospectus is monly called a red herring.Diff: 2Topic: 13.2 Regulation of the Primary MarketObjective: 13.4 how the SEC regulates the distribution of
31、newly issued securities3 Variations in the Underwriting Process1) Not all deals are underwritten using the traditional syndicate process. For example, variations in the United States, the Euromarkets, and foreign markets include _.A) the auction process and rights offering for the underwriting of bo
32、nds.B) the bought deal of the Eurostock market.C) a rights offering for underwriting mon stock.D) All of theseAnswer: Cment: Not all deals are underwritten using the traditional syndicate process we have described. Variations in the United States, the Euromarkets, and foreign markets include the bou
33、ght deal for the underwriting of bonds, the auction process for both stocks and bonds, and a rights offering for underwriting mon stock.Diff: 2Topic: 13.3 Variations in the Underwriting ProcessObjective: 13.3 the different types of underwriting arrangements2) The mechanics of a bought deal are that
34、_.A) the lead manager or a group of managers offers a potential issuer of debt securities a firm bid to purchase an undetermined amount of the securities with an interest (coupon) rate and maturity to be announced later.B) the issuer is given a month or more to accept or reject the bid.C) if the bid
35、 is rejected, the underwriting firm has bought the deal.D) the underwriter can sell the securities to other investment banking firms for distribution to their clients and/or distribute the securities to its clients.Answer: Dment: The mechanics of a bought deal are as follows. The lead manager or a g
36、roup of managers offers a potential issuer of debt securities a firm bid to purchase a specified amount of the securities with a certain interest (coupon) rate and maturity. The issuer is given a day or so (maybe even only a few hours) to accept or reject the bid. If the bid is accepted, the underwr
37、iting firm has bought the deal. It can, in turn, sell the securities to other investment banking firms for distribution to their clients and/or distribute the securities to its clients. Typically, the underwriting firm that buys the deal will have presold most of the issue to its institutional clien
38、ts.Diff: 2Topic: 13.3 Variations in the Underwriting ProcessObjective: 13.7 what is a bought deal underwriting for a bond issue, and why it is used3) A consequence of _ is that underwriting firms need to expand their capital so that they can mit greater amounts of funds to such deals.A) accepting au
39、ction deals B) rejecting bought deals C) accepting bought deals D) rejecting auction deals Answer: CDiff: 2Topic: 13.3 Variations in the Underwriting ProcessObjective: 13.5 what a registration statement is4) A variation for underwriting securities is the auction process. In this method, _.A) the iss
40、uer announces the terms of the issue, and interested parties submit bids for part of the issue.B) the auction form is mandated for certain securities of regulated public utilities but not for municipal debt obligations.C) the issuer announces the terms of the issue, and interested parties submit bid
41、s for the entire issue.D) mandated for many municipal debt obligations but not for certain securities of regulated public utilities.Answer: Cment: A variation for underwriting securities is the auction process. In this method, the issuer announces the terms of the issue, and interested parties submi
42、t bids for the entire issue. The auction form is mandated for certain securities of regulated public utilities and for many municipal debt obligations. It is more monly referred to as a petitive bidding underwriting.Diff: 2Topic: 13.3 Variations in the Underwriting ProcessObjective: 13.3 the differe
43、nt types of underwriting arrangements5) In a variant of the auction process, a security is allocated to bidders from the highest bid price (_) to the lower ones (_) until the entire issue is allocated.A) (highest yield in the case of a bond); (higher yield in the case of a bond)B) (lowest yield in t
44、he case of a bond); (higher yield in the case of a bond)C) (lowest yield in the case of a bond); (lower yield in the case of a bond)D) (highest yield in the case of a bond); (lower yield in the case of a bond)Answer: Bment: The security is then allocated to bidders from the highest bid price (lowest
45、 yield in the case of a bond) to the lower ones (higher yield in the case of a bond) until the entire issue is allocated.Diff: 3Topic: 13.3 Variations in the Underwriting ProcessObjective: 13.3 the different types of underwriting arrangements6) Suppose that an issuer is offering $600 million of a bo
46、nd issue, and nine bidders submit the following yield bids:BidderAmount BidA$150 million5.1%B$140 million5.2%C$130 million5.2%D$100 million5.3%E$75 million5.4%F$25 million5.4%G$80 million5.5%H$70 million5.6%Which of the below statements is FALSE?A) The first five bidders (A, B, C, D, and E) will be
47、allocated the amount for which they bid because they submitted the lowest-yield bids. In total, they will receive $595 million of the $600 million to be issued.B) After allocating $420 million to the highest three bidders, then $180 million can be allocated to the next two highest bidders.C) The lowest bidders will receive an amount proportionate to the amount for which they bid.D) After allocating $595 million to the highest bidders, then $5 million can be allocated to the next lowest bidders.Answer: Bment: If we allocate $420 million to the highest t
