Question 1

The Glass-Steagall Act prohibited

Accepted Answer

A)   retail brokerage firms from having investment banking operations.
B)   commercial banks from combining investment banking and commercial banking functions.
C)   investment banks from selling both debt and equity securities.
D)   insurance companies from selling investment products.

Question 2

An underwriting syndicate is a group of investment bankers who help to distribute a new issue for a company.

Accepted Answer

A) True 
 B)False

Question 3

Which of the following is a characteristic of leveraged buyouts?

Accepted Answer

A)   Buyouts are usually financed by debt.
B)   Some corporate assets are often sold after the buy-out is completed.
C)   Funds for the buy-out are raised through securities markets.
D)   all the options are characteristics of a leveraged buyout. D

Question 4

Investment banks are hesitant to issue bonds when they perceive the interest rate to be low.

Accepted Answer

A) True 
 B)False

Question 5

The Gramm-Leach-Bliley Act repealed the Bretton Woods Agreement.

Accepted Answer

A) True 
 B)False  False

Question 6

Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out-of-pocket costs in addition to the spread will be $450,000. What are the net proceeds to Raybac?

Accepted Answer

A)   $17,500,000
B)   $17,050,000
C)   $17,075,000
D)   $16,175,000

Question 7

Which of the following is not a recent trend in investment banking?

Accepted Answer

A)   Consolidation of capital among a few investment bankers
B)   Specialization of investment banking
C)   The use of shelf registration by smaller investment bankers
D)   The movement of non-brokerage firms into the brokerage area

Question 8

Smaller investment banking houses may handle distributions for relatively unknown corporations on a "best-efforts" basis.

Accepted Answer

A) True 
 B)False

Question 9

One purpose of an underwriting syndicate is to distribute securities to the public.

Accepted Answer

A) True 
 B)False

Question 10

Underpricing is when an investment banker sets the stock price above the market price to ensure that a profit is made.

Accepted Answer

A) True 
 B)False

Question 11

Only the stronger investment bankers are in a position to benefit from the shelf registration process.

Accepted Answer

A) True 
 B)False

Question 12

When a firm issues new stock, it always results in a dilution of earnings in the long run.

Accepted Answer

A) True 
 B)False

Question 13

Investment banking is highly concentrated with the top 10 underwriters controlling 90% of the global market for stocks and bonds.

Accepted Answer

A) True 
 B)False

Question 14

The investment banking industry has shifted its emphasis from mergers and acquisitions to underwriting new securities.

Accepted Answer

A) True 
 B)False  False

Question 15

When a new issue of bonds is sold, all the proceeds go to the owners of the company.

Accepted Answer

A) True 
 B)False

Question 16

Maxwell Corp. is coming to the market with a new offering of 450,000 shares of stock at $22 to the public. Maxwell will receive $19 per share. The firm has one million shares outstanding and earnings of $6 million before recording the new issue. What is the amount of dilution in earnings per share?

Accepted Answer

A)   $1.86
B)   $1.38
C)   $1.77
D)   $6.00

Question 17

Which of the following characteristics is not a disadvantage of being a publicly traded company?

Accepted Answer

A)   Compliance costs because of various public disclosure requirements.
B)   Prestige is helpful in bank negotiations, executive recruitment and the marketing of products.
C)   Company must make all information available to the public through SEC and State filings.
D)   Tremendous pressure for short-term performance placed on the firm by analysts and large institutional investors.

Question 18

In issuing stock, the term "spread" refers to

Accepted Answer

A)   the profit the managing investment banker gets for an issue of stock.
B)   the disparity between the initial asking price and the average price for the stock issued some months later.
C)   the difference between what the corporation gets for new issues of stock and what the public pays for the stock.
D)   the total cost to the corporation for issuing new stock.

Question 19

In a public distribution, the dealer group will generally pay a

Accepted Answer

A)   higher price for the stock than the public.
B)   lower price for the stock than the managing investment banker.
C)   higher price for the stock than the managing investment banker.
D)   lower price for the stock than members of the investment banking syndicate group.

Question 20

A lower equity spread usually means that there is a lower amount of uncertainty in equity compared to other types of capital.

Accepted Answer

A) True 
 B)False

Exam 15: Investment Banking: Public and Private Placement

The Glass-Steagall Act prohibited

Correct AnswerverifiedShow Answer

An underwriting syndicate is a group of investment bankers who help to distribute a new issue for a company.

Correct AnswerverifiedShow Answer

Which of the following is a characteristic of leveraged buyouts?

Correct AnswerverifiedD

Investment banks are hesitant to issue bonds when they perceive the interest rate to be low.

Correct AnswerverifiedShow Answer

The Gramm-Leach-Bliley Act repealed the Bretton Woods Agreement.

Correct AnswerverifiedFalse

Raybac is about to go public. Its present stockholders own 500,000 shares. The new public issue will represent 700,000 shares. The shares will be priced at $25 to the public with a 5% spread. The out-of-pocket costs in addition to the spread will be $450,000. What are the net proceeds to Raybac?

Correct AnswerverifiedShow Answer

Which of the following is not a recent trend in investment banking?

Correct AnswerverifiedShow Answer

Smaller investment banking houses may handle distributions for relatively unknown corporations on a "best-efforts" basis.

Correct AnswerverifiedShow Answer

One purpose of an underwriting syndicate is to distribute securities to the public.

Correct AnswerverifiedShow Answer

Underpricing is when an investment banker sets the stock price above the market price to ensure that a profit is made.

Correct AnswerverifiedShow Answer

Only the stronger investment bankers are in a position to benefit from the shelf registration process.

Correct AnswerverifiedShow Answer

When a firm issues new stock, it always results in a dilution of earnings in the long run.

Correct AnswerverifiedShow Answer

Investment banking is highly concentrated with the top 10 underwriters controlling 90% of the global market for stocks and bonds.

Correct AnswerverifiedShow Answer

The investment banking industry has shifted its emphasis from mergers and acquisitions to underwriting new securities.

Correct AnswerverifiedFalse

When a new issue of bonds is sold, all the proceeds go to the owners of the company.

Correct AnswerverifiedShow Answer

Maxwell Corp. is coming to the market with a new offering of 450,000 shares of stock at $22 to the public. Maxwell will receive $19 per share. The firm has one million shares outstanding and earnings of $6 million before recording the new issue. What is the amount of dilution in earnings per share?

Correct AnswerverifiedShow Answer

Which of the following characteristics is not a disadvantage of being a publicly traded company?

Correct AnswerverifiedShow Answer

In issuing stock, the term "spread" refers to

Correct AnswerverifiedShow Answer

In a public distribution, the dealer group will generally pay a

Correct AnswerverifiedShow Answer

A lower equity spread usually means that there is a lower amount of uncertainty in equity compared to other types of capital.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
D

Correct Answer
verified

Correct Answer
verified
False

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
False

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified