Deck 6: The Stock Market

Question 1

In Canada, ___________ is the most influential provincial regulatory agency charged with regulating TSX listed securities and the companies.

A) OSC
B) NYSE
C) CDIC
D) CDNX
E) MX

Answer 1

A

Question 2

In a(n) ___________ new security issues of a seasoned equity are initially offered to existing shareholders.

A) initial private offer.
B) private equity transaction.
C) rights offer.
D) preferred sharing offer.
E) follow-on offer.

Answer 2

D

Question 3

A best effect underwriting is an arrangement where an investment banker

A) Buys all of a new issue of securities from the issuer and then attempts to resell those securities
B) Pays a fixed amount to the issuer and then tries to resell as many of the shares possible
C) Tries to sell as many shares of a new issue as possible and only pays for the shares that are actually sold to investors
D) Agrees to continue selling any unsold shares after the initial offering period has expired
E) Agrees purchase any shares remaining in a new issue after the firm has done its best to sell all of the shares to investors

Answer 3

C

Question 4

Entrepreneurs appearing on shows such as "The Dragon's Den" are seeking ___________ to help finance their start-up companies

A) expansion leverage
B) leveraged positions
C) venture capital
D) start-up funds
E) junk bond issues

Question 5

LOL Financial is buying 100,000 shares of stock from OMG Inc., as part of a new stock issues trading on the TSX. This sale is occurring in the ___________ market

A) Third
B) Primary
C) Initial
D) Secondary
E) OTC

Question 6

Under the provisions of a general cash offer, shares of stock are offered to:

A) underwriters on a guaranteed sale basis only.
B) current shareholders prior to being offered to the general public.
C) institutional investors only.
D) the issuer's employees on a cash purchase basis only.
E) the general public on a "first-come" basis.

Question 7

Small, family owned firms with an established performance history are often known as ___________ companies.

A) private equity
B) middle market.
C) over-the-counter
D) start-up
E) seasoned concerned

Question 8

When the price of newly issued shares is determined by competitive bidding the underwriting is known as a ___________ underwriting.

A) Dutch auction
B) market-priced
C) seasoned
D) best efforts
E) rights

Question 9

You are buying 500 shares of stock from your uncle in the NASDAQ market. This transaction is taking place in the ___________ market.

A) Third
B) Primary
C) Initial
D) Secondary
E) OTC

Question 10

The term ___________ is used to describe the financing for non-public companies.

A) start-up funding
B) leveraged buyout
C) venture capital
D) capital market financing
E) private equity

Question 11

A(n) ___________ specializes in finding buyers for newly issued securities and helps arrange financing for companies.

A) stock market
B) investment banking firm
C) stock exchange
D) open market
E) commercial bank

Question 12

A yard sale would be an example of a ___________ market.

A) Third
B) Primary
C) Initial
D) Secondary
E) OTC

Question 13

The financing provided for new ventures that are frequently high-risk investments is referred to as "venture ___________".

A) capital
B) leverage
C) risk funds
D) funding
E) investing

Question 14

Habitant Ice Makers is a publicly-traded firm with 1,000,000 shares of stock outstanding. If the firm issues an additional 20,000 shares, those shares will be referred to as a(n):

A) supplemental offering
B) seasoned equity offering.
C) initial public offer
D) market expansion offer.
E) after-market underwriting.

Question 15

The first time a firm sells shares of stock to the public is called a(n) ___________ offering.

A) Secondary
B) Tertiary
C) Market
D) Initial public
E) Open

Question 16

A public offering of securities which are offered first to current shareholders is called a(n):

A) existing shareholder offer.
B) limited offer.
C) rights offer.
D) venture offer.
E) preference offer.

Question 17

Which of the following best describes a "leveraged buyout".

A) The use of borrowed funds to take a company private.
B) Buying a majority share in a small, relatively risky company.
C) The private debt-financing of company with a known history.
D) The purchase of "on going concerns" that is family owned and operated.
E) Debt financing of a start-up firm with no assets to provide as collateral.

Question 18

___________ is the process by which an investment banking firm assumes the risk of purchasing newly issued securities from a company and reselling those shares to investors in the market.

A) Underwriting
B) New issue
C) Open market operations
D) Commercial sales
E) Firm commitment

Question 19

A ___________ commitment underwriting is an arrangement where the underwriter pays the issuer a stated amount whether or not the underwriter can sell all of the shares in the issue to investors.

A) Standby
B) Fixed
C) Variable
D) Best effort
E) Clean sweep

Question 20

The percentage the investment banker keeps when selling a security for a company is called the underwriter ___________.

A) Profit
B) Spread
C) Margin
D) Take
E) Markup

Question 21

Inside quotes are the

A) Highest asked and lowest bid quotes offered by securities dealers
B) Highest bid and lowest asked quotes offered by securities dealers
C) Latest prices at which corporate insiders have purchased or sold securities
D) Bid and asked prices that are offered only to institutional traders or large private investors
E) Latest buy and sell limit order prices placed by individual investors on the floor of an exchange

Question 22

The owner of a seat on the NYSE and the TSX is referred to as a:

A) market maker.
B) dealer.
C) member.
D) specialist.
E) underwriter.

Question 23

A preliminary prospectus not yet approved by the OSC is referred to as a(n) ___________.

A) Primary prospectus
B) Red herring
C) Best effort document
D) Initial prospectus
E) Draft

Question 24

A(n) _________ arranges security transactions between investors.

A) Agent
B) Broker
C) Underwriter
D) Dealer
E) investment banker

Question 25

An advertisement that indicates how to obtain a prospectus for securities that will be offered for sale is called a(n) _________.

A) red herring
B) letter of interest
C) offer sheet
D) Spread
E) Tombstone

Question 26

The difference between the price a dealer will pay for a stock and the price for which a dealer will sell a stock is the ________.

A) Margin
B) Offer margin
C) Dealer concession
D) Spread
E) Profit margin

Question 27

When stocks are held in an index in proportion to their total company market value, the index is

A) Balanced
B) Front-weighted
C) Back-weighted
D) Price-weighted
E) Value-weighted

Question 28

A ___________ order means that the customer wants the security bought or sold immediately at the best possible price.

A) Stop
B) Broker
C) Market
D) Limit
E) Transfer

Question 29

The price at which a dealer is willing to sell a security in the market is called the ___________ price. This is the ___________ of the two prices quoted for securities.

A) Ask; higher
B) Bid; higher
C) Ask; lower
D) Bid; lower
E) Spread; medium

Question 30

An order to buy and sell only at a particular price or better is called a(n) ___________ order.

A) Stop
B) Broker
C) Market
D) Limit
E) Transfer

Question 31

A customer order that converts to a market order when a preset price is reached is called a(n) ___________ order. However, the pre-specified price on the customer order can be above or below the current price.

A) Stop
B) Broker
C) Market
D) Limit
E) Transfer

Question 32

The market for exchange listed securities in which investors trade directly with each other through a computer network is referred to as the ___________ market.

A) Primary
B) Secondary
C) Third
D) Fourth
E) OTC

Question 33

The price a dealer is willing to pay for a security is called the ___________ price, which is also the ___________ of the two prices quoted for any security.

A) Ask; higher
B) Bid; lower
C) Bid; higher
D) Ask; lower
E) Spread; medium

Question 34

A stock market index in which stocks are held in proportion to their share prices is called a ___________ index.

A) Balanced
B) Market-weighted
C) Diluted
D) Price-weighted
E) Value-weighted

Question 35

The regulation stating that a short sale can only be executed if the last price change moved the market price of the security higher is called the ___________ rule.

A) Cash order
B) Limit
C) Stop-limit
D) High-end
E) Uptick

Question 36

In an initial public offering, a legal document that details a company's financial position, operations and investment plans is call a(n) ___________.

A) Tombstone
B) Letter of intent
C) Offering statement
D) Prospectus
E) Red herring

Question 37

A(n) ________ buys and sells securities from their own inventory.

A) commission broker
B) Broker
C) Underwriter
D) Dealer
E) investment banker

Question 38

The off-exchange market for securities listed on the exchange is the ___________ market.

A) Primary
B) Secondary
C) Third
D) Fourth
E) OTC

Question 39

In 1977, the ___________ launched the world's first computer assisted trading system (CATS) and closed its trading floor to become the largest electronic North American exchange.

A) New York Stock Exchange
B) Toronto Stock Exchange
C) Chicago Options Exchange
D) NASDAQ
E) Canadian Venture Exchange

Question 40

_______ occurs when some of the stock in the index has not traded recently.

A) Index illiquidity
B) Late trading
C) Index delay
D) Index staleness
E) Late returns

Question 41

Which of the following will usually be listed in a tombstone?

A) Names of the underwriters
B) Name of the issuer
C) Offering price
D) Value of the issue
E) All of the above

Question 42

ABC Inc. has 130,000 shares of stock outstanding. You want to buy 400 of these shares. The price you will have to pay is the ___________ price.

A) Margin
B) Bid
C) Ask
D) Broker
E) Spread

Question 43

In recent years ____________ underwriting has become much more common than ________ underwriting.

A) best effort; firm commitment
B) Dutch auction; best effort
C) firm commitment; best effort
D) firm commitment; Dutch auction
E) Dutch auction; firm commitment

Question 44

When a registration statement for an IPO is filed, the OSC verifies that the

A) Issuer will remain solvent
B) Rules have been followed to allow for full disclosure of information
C) Stock price is set at a level that will allow shareholders to earn a positive return
D) Issuer is financially sound
E) Offering will provide value to the shareholders

Question 45

To research a new security issue, the major source of information for a potential investor is the

A) Prospectus
B) Annual report
C) Registration statement
D) Proxy statement
E) None of the above

Question 46

Suppose all stocks in a price-weighted index increase by the same percentage one day. The stock that would affect the index the most would be the:

A) lowest priced stock.
B) highest priced stock.
C) smallest capitalization stock.
D) largest capitalization stock.
E) All of the stocks would change the index by the same amount.

Question 47

You currently own 145,000 shares of a stock. You will sell those shares for $16.20 a share. You are also willing to purchase additional shares for $16.50 a share. Indeed, you are performing as a securities ___________.

A) Broker
B) Representative
C) Underwriter
D) Specialist
E) Dealer

Question 48

The Canadian Venture Exchanged was formed by a merger between the ________ and the ________ exchanges.

A) Toronto; Montreal.
B) Vancouver; Alberta.
C) Montreal; Alberta.
D) Winnipeg; Montreal.
E) Vancouver; Toronto.

Question 49

Which of the following can be allowed missing from a prospectus?

A) Selling price
B) Offering date
C) Underwriting discount
D) All of the above
E) None of the above

Question 50

Which of the following is not a consideration when establishing a market index?

A) What market is covered.
B) How the index is calculated.
C) How to increase the index returns.
D) What types of stocks are included.
E) How many stocks to include.

Question 51

Which of the following would not be a reason to adjust the divisor of a price-weighted index?

A) A stock in the index splits.
B) A cash dividend is paid.
C) A stock is dropped from the index and a new stock added.
D) A stock in the index has a reverse stock split.
E) All of the above are reasons to adjust the divisor.

Question 52

The majority of all capital market transactions occur in the

A) Primary market
B) Secondary market
C) Third market
D) Fourth market
E) Direct placement market

Question 53

Which of the following transactions involving stock occurs in the primary market?

A) Sale by Shareholder X to Shareholder Y
B) Gift of shares from a grandmother to her grandson
C) Sale of newly issued shares to a shareholder
D) Trade arranged by a broker
E) Purchase by a dealer from a shareholder

Question 54

The fourth market usually involves

A) Large-block activities between institutional investors
B) Transaction in unlisted securities
C) Small trades between individual buyers and sellers
D) Transaction between broker and dealers
E) Only TSX members

Question 55

How most often are shares allocated in a Dutch auction when there are more shares demanded than are available at the winning bid price?

A) Have a random draw to determine which companies will be allowed to buy shares.
B) Have a random draw to determine which companies will be excluded from buying shares.
C) Repeat the auction starting from scratch.
D) Allot each company a proportion of shares relative to the number of shares available and the number of shares demanded at the winning price.
E) Sell shares to companies with the highest bids and split the remaining shares amongst companies with bids equal to the winning bid price

Question 56

PING Inc. has 130,000 shares of stock outstanding. You want to buy 400 of these shares. The price you offer to pay is the ___________ price.

A) Margin
B) Bid
C) Ask
D) Broker
E) Spread

Question 57

IBM decides to issue new stock. The stock will be sold on the ___________ market.

A) Primary
B) Secondary
C) Third
D) Fourth
E) TSX

Question 58

The underwriting agreement commonly requires that the original shareholders will not sell their shares for a period of ___________ after the underwriting.

A) One month
B) Three months
C) Six months
D) One year
E) One and half years

Question 59

The difference between the price a company receives for stock sold to the underwriter and the price of the stock charged in the primary market by the underwriter is known as the underwriter:

A) profit.
B) gain.
C) return.
D) spread.
E) market.

Question 60

The Montreal Exchange is the Canadian home for trading __________?

A) junior mining companies.
B) commodities futures.
C) senior issues.
D) IPOs
E) derivatives.

Question 61

Which of the following order types would normally be executed the fastest?

A) A market order.
B) A limit order.
C) A stop order.
D) A stop-limit order.
E) A stop-buy order.

Question 62

The major commodity exchange in Canada is located in _____________.

A) Winnipeg
B) Calgary
C) Toronto
D) Montreal
E) Halifax

Question 63

Stock market indexes

A) Are all computed using the same methodology
B) All react the same to a change in the price of a particular stock
C) All cover the same market sectors
D) Are all price-weighted
E) Vary in the type of stocks included

Question 64

S&P/TSX Composite Index is a capitalization-weighted index of ___________ Canadian stocks.

A) 273
B) 60
C) 30
D) 300
E) 100

Question 65

Which of the following is false regarding DJIA?

A) The divisor for the DJIA is approximately 0.14279922
B) The companies in the DJIA change from time to time
C) The divisor for the DJIA is adjusted for all splits and stock dividends
D) The DJIA is price weighted
E) None of the above

Question 66

Which of the following is a valid criticism of the method used to calculate the DJIA?

A) It uses too few stocks to represent the entire market
B) The divisor is not adjusted for small stock dividends
C) High-priced stocks carry more weight than low-priced stocks
D) All of the above
E) None of the above

Question 67

Suppose all stocks in a value-weighted index increase by the same percentage one day. The stock that would affect the index the most would be the:

A) lowest priced stock.
B) highest priced stock.
C) smallest capitalization stock.
D) largest capitalization stock.
E) all of the stocks would change the index by the same amount.

Question 68

Which of the following is true?

A) Trading volumes on the Toronto Stock Exchange are the largest among all Canadian exchanges.
B) Montreal Exchange focuses on commodity futures trading.
C) Senior Canadian companies are listed at the Canadian Venture Exchange.
D) Financial derivative trading is handled by the Winnipeg Exchange.
E) All of the above

Question 69

You place a stop-loss order at $78. The current share price is $82. The stock price drops the next day to $75. What is the best price you could receive for your stock?

A) $75.00
B) $78.00
C) $74.99
D) $82.00
E) $75.01

Question 70

With a market order:

A) the broker attempts to get the best possible price during a lengthy period.
B) the investors must pay cash for the trades.
C) the broker tries to obtain the best possible price at the time the order is executed.
D) the broker should decide what is the reasonable price of the securities.
E) none of the above

Question 71

Most stock indexes

A) Have a constant divisor that is equal to the number of securities in the index
B) Are based on the 300 largest Canadian companies
C) Reflect both dividends and capital gains
D) Are based on 100 stocks
E) Are based on capital gains only

Question 72

The index divisor

A) For the DJIA is 30
B) Remain constant once it is established
C) Tends to increase over time
D) Is equal to the number of stocks in the index
E) Decreases in response to stock splits

Question 73

___________ orders are often placed in conjunction with short sales in order to limit potential losses.

A) Market
B) Limit
C) Stop-sell
D) Stop-buy
E) Stop-limit

Question 74

A particular index is based on technology stocks. On any given day, 30% of the stocks in the index do not trade. This index is subject to index

A) Redundancy
B) Inversion
C) Staleness
D) Interruption
E) Reallocation

Question 75

A company must have at least ___________ shareholders to be listed on the NYSE and ___________ for the TSX.

A) 1,100; 150
B) 2,200; 300
C) 1,500; 200
D) 100; 10
E) 1,000; 500

Question 76

The overall listing requirements for the TSX Venture Exchange are

A) Less stricter than the Toronto Stock Exchange
B) More stricter than the Toronto Stock Exchange
C) The same as the Toronto Stock Exchange
D) The same as the New York Stock Exchange
E) The same as the NASDAQ

Question 77

Which of the following is false regarding the NYSE and TSX?

A) The purpose of both exchanges is to attract order flow.
B) Both exchanges are operated as a not-for-profit business.
C) They are owned by their members.
D) Both exchanges have physical trading locations.
E) Membership on both exchanges can be traded or sold.

Question 78

In order to be listed on the NYSE and the TSX, a company must have at least ___________ and ___________ million shares, respectively, held in public hands.

A) 2.3, 1.5
B) 1.5, 0.75
C) 1.1, 1.0
D) 2.0, 1.25
E) 1.8, 1.5

Question 79

Which of the following are the reasons why Investors use market indexes?
I) Market indexes are used as a benchmark to measure portfolio performance
II) Market indexes can be used to estimate the future movements of the indexes
III) Market indexes are helpful to determine relationship between past price movements and economic variable

A) I and II
B) I and III
C) II and III
D) I, II and III
E) I

Question 80

To be listed on the Toronto Stock Exchange, a firm must have:

A) Net tangible assets more than $2 million
B) Pre-tax income larger than $200,000 in most recent years
C) At least $4 million in market value of publicly held shares
D) At least 1 million shares of outstanding stock held in public hands
E) All of the above