1. Letter stock is a handwritten certificate representing a corporate IOU. a mass mailing offering a security for sale.

securities issued by the United States Postal Service. privately placed common stock that cannot be immediately resold to the general public. 2. A preliminary prospectus is known as a golden parachute. red herring. blue sky. green shoe.

private placement privileged subscription public issue all of the above 10. permits what is known as a shelf registration. S() *ule +,, S() *ule +,,a !EC "ule #$% S() -orm +./

11. A company can ensure the complete success of a rights offering by making use of a 3. If an investment banker has agreed to sell a new issue of securities standby arrangement. on a best-efforts basis, the issue oversubscription privilege. most likely involves an unusually large stock offering. green shoe provision. most likely involves bonds instead of common stock. shelf registration. results in no assumption of underwriting risk by the investment banker. 12. !he market price of 0 ! 1ew )orporation's common stock is 234 most likely involves a well established, large company. per share, and each share gives its owner one subscription right. -our rights are re$uired to purchase an additional share of common 4. !he actual market value of a right will differ from its theoretical stock at the subscription price of 25, per share. If the common stock value for all of the following reasons EXCEPT for" is currently selling %rights on,% the theoretical value of a right is closest the size of the firm's marginal ta rate. to the amount of transactions costs incurred. 24.63 investor speculation. &$.'( the irregular e#ercise and sale of rights over the subscription period. 2+.54 23.44 5. In a common stock rights offering the subscription price is generally" 13. 7See 8uestion +9 above.: !he theoretical value of one share of 0 set e$ual to the current market price of the stock. ! 1ew common stock when it goes %e# rights% is closest to set below the current market price of the stock. 25,.44 set above the current market price of the stock. 25;.54 set after the stock goes %e# rights.% &%).)( 256.4, 6. &hen the investment banker bears the risk of not being able to sell a new security at the established price, this is known as" 14. Financial intermediaries . a best efforts offering. do not invest in new long term securities underwriting. include insurance companies and pension funds shelf registration. include the national and regional stock e#changes making a market. are usually underwriting syndicates 7. !o say that there is %asymmetric information% in the issuing of common stock or debt means that investors have nearly perfect information. the markets have nearly perfect information. investors have more accurate information than management has. management has more accurate information than investors have. 8. In calculating the value of one right when the stock is selling %rights on,% the analyst needs to know the number of rights needed to buy one share of stock and" the subscription price per share. the transactions costs involved. the price earnings ratio of the firm's stock. the length of the rights offering period. 9. A best efforts offering is sometimes used in connection with a of new, long term securities. $. Correct 15. !he Sarbanes O#ley Act of 9449 7SO<: was largely a response to" a series of corporate and accounting frauds involving Enron* +rthur +ndersen* ,orldCom* and numerous others. a dramatic rise in the US trade deficit. charges of e#cessive compensation to top corporate e#ecutives. rising complaints by investors and security analysts over the financial accounting for stock options. The following item is -E, to the $.th edition. 16. =ecause of US %Securities Offering *eform% can take advantage of a special streamlined %shelf registration% process that provides for automatic effectiveness of a reg>istration statement upon filing with the S() 7i.e., no S() review:. only unseasoned issuers only seasoned issuers only well/known seasoned issuers 0,1!2s3 only seasoned issuers and well known seasoned issuers 7&0SIs:

!he preliminary prospectus, which has a statement on its cover that the registration statement has not yet become effective, is referred to as a 7an: ??????????.4our answer5 red herring A market where new securities are bought and sold for the first time is known as a ?????????? market. 4our answer5 primary A market for e#isting 7used: securities, such as the @AS( or AB(<, rather than new issues is known as the ?????????? market.4our answer5 secondary

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A market for relatively long term 7greater than one year original maturity: financial instruments 7e.g., bonds and stocks: is known as the ?????????? market. 4our answer5 capital. &hich securities law re$uires that public offerings be registered with the federal government before they are soldC 4our answer5 Securities (#change Act of +6.. &hich securities law regulates the secondary market for long term securities already outstandingC 4our answer5 Securities (#change Act of +6.,. An arrangement with a single investment banker or group of investment bankers to %stand by % and be ready to underwrite any unsold portion of an issue, is referred to as a 7an: ??????????. 4our answer5 standby arrangement &hich securities law7s: is 7are: involved with state laws regulating the offering and sale of securitiesC 4our answer5 =lue Sky 1aws &hich of the following is privately placed common stock that cannot be immediately resoldC 4our answer5 1etter stock. &hich of the following is a short term option to buy a certain number of securities from the issuing corporationC 4our answer5 *ight &hich of the following statements is correct regarding asymmetric informationC 4our answer5 !his occurs when one party, say management, has better information than another party, say investors, about relevant information to each party. A temporary combination of investment banking firms formed to sell a new security issue, can be referred to as a 7an: ??????????. 4our answer5 underwriting syndicate &hat happens, according to the te#t, to the average common stock price immediately after the announcement of a new e$uity issue by a publicly traded firmC 4our answer5 !he average stock price decreases a few percentage points. !he @ew Aork Stock (#change 7@AS(: can be considered as being a part of the ?????????? and the ??????????. 4our answer5 secondary market for long term securitiesD capital market

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&hich of the following is not a method a firm can use to publicly issue common stockC 4our answer5 Private placement. &hich of the following is not a method a firm can use to finance their long term needs e#ternallyC 4our answer5 *etained earnings. Eow are investment bankers generally compensated under traditional underwritingC 4our answer5 Investment bankers earn a spread based on the difference between the purchase price from the firm and the sales price to investors of the securities being underwritten. If the market price of a stock %rights on % is 254 a share, the subscription price is 2,4 a share, and it takes nine rights to buy an additional share of common stock, the theoretical value of a right when the stock is selling %rights on % is how muchC 4our answer5 2+.44 !he ?????????? is a disclosure document filed with the S() in order to register a new security and includes the prospectus and other S() re$uired information. 4our answer5 registration statement

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