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Exam 19: Using Securities Markets for Financing and Investing Opportunities

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Question 141

True/False

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Corporations receive needed funds when they sell a new issuance of a security in the primary market.

A) True
B) False

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Question 142

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Institutional investors include insurance companies,individual investors,and mutual funds.

A) True
B) False

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Question 143

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By issuing bonds with a ________,the corporation retains the right to pay off the bond prior to the maturity date.

A(n) ________ refers to the first public offering of a corporation's stock.

High-risk,high-interest bonds are called:

Most investment advisors put mutual funds high on the list of recommended investments for experienced investors,but consider them too risky for beginning investors.

Issuing bonds is considered debt financing.

A bear is an investor that expects stock prices to rise.

A sinking fund is a reserve account where the firm will periodically deposit funds in anticipation of repayment of a bond issue on the maturity date.

Preferred stock may include callable and convertible provisions.

Mini-Case Penny Stock is the chairperson of Pirate Recording Company Inc.She is the person responsible for the tremendous growth this company has enjoyed over the past three years.It was Penny's intuition and clever negotiating that enabled the company to sign two very hot recording artists: Half a Dollar and N'elli.These groups have generated profits of over $25 million. The future looks even brighter at the firm because several current and aspiring entertainers have indicated an interest in signing on with Pirate Recording.This incredible growth has delighted everyone at the company,but it has also created a major problem for Penny.Pirate Recording has never been a major player in the recording industry,primarily because of limited capital.In order to take the company to the next level Penny realizes that she will need to expand the firm's personnel and equipment.The amount of new funds required to finance this needed expansion is $150 million.Penny has started to consult with others about how to finance this major expansion of the company. -Penny is concerned about the interest rate risk if the company decides to issue bonds.Penny would like protection from interest rate fluctuation.Therefore,the bond issue's features should include a(n) :

As your elderly Uncle Bill approaches retirement,he asks for your advice for a safe place to invest several thousand dollars.He wants to receive some kind of payment each year for investing his money without a great deal of risk.You explain:

From an investor's viewpoint,bonds generally provide a safer investment option than does the stock of the same corporation.

The higher the risk associated with a bond issue,the ________ the interest rate the organization must offer investors.

Many stock analysts believe that program trading decreases the volatility of stock market prices.

It is easier for a small business to raise funds through a stock issuance than for a large,well-known company.

Only government employees represent institutional investors.

A corporate bond provides the owner with the right to sell the bond to other investors at any time during the life of the bond.

Both stocks and bonds represent temporary sources of funding for a firm.Eventually they must be repaid.

____________ means that the mutual fund company does not show a fee or commission for investing in the fund.