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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 121

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Insider trading laws prevent employees from buying or selling the securities of their employers.

A) True
B) False

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Question 122

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

A) True
B) False

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Question 123

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Bondholders represent creditors of a firm.

Debenture bonds represent bonds that are not secured by collateral.

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.

Corporations sell a new issuance of securities in the Primary Market.

Having just returned from the Iraq war, David, a young soldier has $25,000 in his savings account. His girlfriend suggested that he talk with an investment advisor and let his money "make more money". David has his eye on a new Ford truck, but he knows that his old Jeep Cherokee will probably last another four years, at which time he will definitely need this money as a down payment or purchase of something new. David should buy high growth stock with his funds because even though they are risky, they also have the greatest potential of bringing in the better return on his investment.

Which of the following statements best describes the current legal interpretation of insider trading?

Yolanda has an ownership interest in many different companies, yet she owns the shares of stock of just one organization. Yolanda undoubtedly owns shares in a(n) :

The interest rate on a AAA rated government treasury bond is 3.5%. A secured corporate bond is likely to pay:

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

Investment bankers assist in the issuing and selling of new securities.

CEOs often receive additional compensation if the firm's stock price appreciates. The Making Ethical Decisions box, titled, "Wagging the Dog", provides the student with a view of the kinds of ethical decisions that CEOS face. CEOs are often asked to consider the best interest of the firm and its employees, before their own self-interest.

Securities markets help companies raise long-term debt and equity financing.

When Tong Su purchased 500 shares of preferred stock in the Vibrates Corporation, his certificate indicated the stock had a par value of $50 per share. This means that Tong Su:

Preferred stockholders possess the first right to purchase any new stock the company issues.

After many years as a privately held corporation, Connecticut Industries decided to offer stock to the general public. Connecticut may discover that stockholders:

Two kinds of equity financing are:

Bonds, like stocks, trade daily on major security exchanges.

An investor placing a market order with a broker agrees to buy or sell a stock immediately at the best price available.