Chapter 05
The Stock Market
Multiple Choice Questions
| 1. | High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares, the trade will occur in which one of the following markets?
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| 2. | Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?
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| 3. | Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n):
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| 4. | A firm that specializes in arranging financing for companies is called a(n):
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| 5. | The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called:
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| 6. | The financing provided for new ventures that are frequently high-risk investments is referred to as “venture _______”.
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| 7. | Marco Painting Supplies is a publicly-traded firm with 250,000 shares of stock outstanding. If the firm issues an additional 10,000 shares, those shares will be referred to as a(n):
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| 8. | Under the provisions of a general cash offer, shares of stock are offered to:
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| 9. | A public offering of securities which are offered first to current shareholders is called a(n):
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| 10. | The difference between the price an underwriter pays an issuer and the underwriter’s offering price is called the:
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| 11. | When a group of underwriters jointly work together to sell a new issue of securities, the underwriters form a(n):
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| 12. | When an underwriting syndicate purchases an entire issue of new securities and accepts the risk of unsold shares, the underwriting is known as a _____ underwriting.
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| 13. | When the issuer assumes the risk for any shares the underwriters cannot sell, the underwriting is known as a _____ underwriting.
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| 14. | When the price of newly issued shares is determined by competitive bidding the underwriting is known as a _____ underwriting.
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| 15. | Which one of the following is the federal agency which regulates the financial markets in the U.S.?
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| 16. | The document that must be prepared in order to receive approval for a stock offering is called a:
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| 17. | A preliminary document provided to investors who are interested in a stock offering is called a(n):
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| 18. | A securities dealer is a(n):
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| 19. | Which one of the following best describes a broker?
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| 20. | Which one of the following prices will an individual investor receive if he or she sells shares of Microsoft?
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| 21. | Which one of the following prices will an investor pay to purchase shares of stock that are currently outstanding?
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| 22. | The profit a dealer makes on a purchase and resale of shares of stock is called the:
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| 23. | A private equity fund: I. is set up as a limited partnership II. usually use a 2/20 fee structure III. place no constraints on manager compensation IV. typically have a stated life of 7 to 10 years
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| 24. | Which of the following is correct regarding the compensation paid to private equity fund managers?
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| 25. | An owner of a trading license on the NYSE is called a:
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| 26. | An NYSE Supplemental Liquidity Provider: I. can trade the same stocks as designated market makers II. can trade only from offices outside the exchange III. must quote bid or ask quotes a certain % of the day IV. are paid 30 cents per 100 shares traded
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| 27. | The party who serves as a dealer for a few securities on an exchange floor and is obligated to maintain an orderly market for those securities is called a:
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| 28. | A trading floor broker:
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| 29. | The NYSE’s Super Display Book is an electronic system which:
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| 30. | A NYSE member who trades only for his or her own account is called a(n):
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| 31. | The location on an exchange floor where a particular security trades is called a(n):
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| 32. | You want to sell shares of stock at the current price. Which type of order should you place?
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| 33. | An order to buy shares of stock at a stated price or less is called a _____ order.
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| 34. | An order to sell that involves a preset trigger point is called a _____ order.
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| 35. | A market centered on dealers buying and selling for their own inventories is called a(n):
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| 36. | Which one of the following describes an ECN?
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| 37. | Inside quotes are the:
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| 38. | The off-exchange market in which exchange-listed securities trade is referred to as the _____ market.
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| 39. | The market where individual investors directly trade exchange-listed securities with other individual investors is referred to as the _____ market.
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| 40. | Which of the following types of indexes is a stock market index in which stocks are held in proportion to their share price?
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| 41. | When stocks are held in an index in proportion to their total company market value, the index is:
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| 42. | An index is valued on a daily basis. However, some stocks in this particular index have not traded recently. As a result, this index suffers from index:
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| 43. | Which one of the following statements concerning the NYSE is correct?
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| 44. | Which of the following are common sources of venture capital? I. private individuals II. NASDAQ III. university endowment funds IV. insurance companies
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| 45. | Which one of the following statements concerning venture capital is correct?
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| 46. | How long is the “lock-up” period that is commonly found in an IPO underwriting contract?
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| 47. | Which one of the following can be assumed when the SEC approves an IPO registration?
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| 48. | Which one of the following transactions occurs in the primary market?
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| 49. | Trevor currently owns 545,000 shares of ABC stock. He will sell those shares for $17.10 a share. He is also willing to purchase additional shares for $17.07 a share. Trevor is a securities:
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| 50. | Anna is an individual investor. She purchases shares at the _____ price and sells at the _____ price.
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| 51. | What is the current structure of the NYSE?
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| 52. | In 2007, NYSE Holdings merged with which one of the following?
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| 53. | In order to currently trade on the floor of the NYSE, members must:
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| 54. | Which one of the following has the greatest duty to provide liquidity to the financial market?
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| 55. | The SuperDOT system has lessened the role of which one of the following?
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| 56. | Which one of the following statements related to the NYSE Hybrid market is correct?
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| 57. | To be listed on the NYSE, a firm must have at least:
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| 58. | Lucas wants to sell 9,000 shares of stock and places a market order. The floor broker is unable to arrange the sale with another floor broker so the specialist agrees to “stop” the stock. What has the specialist agreed to do?
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| 59. | The duties of a specialist include which of the following? I. maintain an orderly market II. offer a higher bid price than the floor brokers III. provide liquidity to the market IV. purchase all shares offered as limit sells
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| 60. | Faith placed an order to sell 7,500 shares of stock she currently owned. As soon as the order reached the trading floor, the shares were immediately sold. Which type of order did Faith place?
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| 61. | Steve placed a limit order to sell 500 shares of stock at $14 a share. Which of the following does Steve know for sure? I. His order will execute but the time of execution is unknown. II. His order may never execute. III. He will receive exactly $7,000 if his order executes. IV. He could receive more, but not less, than $14 a share.
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