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The acronym IPO stands for:


A) Initial Public Offering
B) Investment Public Offering
C) Intrinsic Put Option
D) Initial Private Offering

E) A) and B)
F) B) and C)

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How is the compensation to a Canadian investment dealer determined?


A) A standard 2% underwriting fee (based on gross proceeds) plus the total value of the spread.
B) A standard 4% underwriting fee (based on gross proceeds) plus the total value of the spread
C) A standard 2% underwriting fee (based on net proceeds) plus the total value of the spread
D) A standard 2% underwriting fee (based on gross proceeds)

E) A) and B)
F) A) and C)

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Use the following statements to answer this question: I.One of the most frequently cited reasons of why a firm goes public is because investors want to cash out. II.Obtaining cheaper sources of financing over the long term is a potential reason for an IPO.


A) I and II are correct.
B) I and II are incorrect.
C) I is correct and II is incorrect.
D) I is incorrect and II is correct.

E) A) and D)
F) None of the above

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Evaluate the following statement: A short-form prospectus is required for a seasoned offering.

A) True
B) False

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Distinguish between the following: public offering, private placement, and rights offering.

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In a public offering, new securities are...

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Which of the following is not true about a prospectus?


A) The investment dealer helps in the preparation of the document and is legally liable.
B) The CFO rather than CEO signs the document on behalf of the board of directors.
C) All parties involved in the process are supposed to do their best to ensure the consistency of the information provided.
D) It should be a detailed and honest disclosure of information about the firm.

E) A) and D)
F) A) and C)

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In a ______ offering, common shares are offered at a discount to investors who already own shares.


A) bought deal
B) firm commitment
C) standby or rights
D) best efforts

E) A) and B)
F) C) and D)

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Suppose that the current market interest rate is 12% for non-fraudulent bonds, and that one in six bonds are fraudulent in a given market.What would the interest rate be if a fraud premium is introduced, assuming (1) a one-year investment horizon and (2) the market does not require a risk premium?


A) 68.0%
B) 40.0%
C) 34.4%
D) 10.0%

E) B) and C)
F) A) and B)

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If you are handed a formal summary of a security that describes the costs, investment objectives, and risks involved, what are you reading?


A) Annual report
B) Prospectus
C) Auditor report
D) Proxy statement

E) B) and C)
F) A) and D)

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What does the acronym SEC stand for in regards to the financial system?


A) Security Exchange of Canada
B) Securities and Exchange Commission
C) Security Enforcement Coalition
D) Stock Exchange of Canada

E) C) and D)
F) B) and C)

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Which of the following is not a reason for a firm to go public?


A) Founders who are no longer actively involved in the company can cash out.
B) Increased access to financing options.
C) Decreased reporting regulations for public companies.
D) Greater access to larger markets.

E) A) and B)
F) None of the above

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Discuss the differences between a letter of intent from the underwriter to the issuer and an underwriting agreement.

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The letter of intent is an informal agre...

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What are the main differences between a prospectus and an offering memorandum?


A) A prospectus is shorter and costs less to prepare than an offering memorandum.
B) Offering memorandums are shorter and cost less to prepare than prospectuses.
C) A prospectus costs less to prepare but is longer than an offering memorandum.
D) Prospectus and offering memorandum are two different names for the same document.

E) A) and C)
F) C) and D)

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What is venture capital?


A) Money raised from private investors in the exempt market.
B) Money raised from public investors in the capital market.
C) Money raised from private investors in the over-the-counter market.
D) All of the above are examples of venture capital.

E) B) and D)
F) A) and C)

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Asymmetric information is best defined as:


A) information that is available to both parties in a deal and which can be exploited equally by each.
B) information that is available to neither party in a deal.
C) information that is available to one party in a deal but is not available to the other.
D) any information provided by insiders of the firm.

E) A) and D)
F) A) and C)

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Explain the importance of the lock-up period in the asymmetry of information minimization process.

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One of the reasons for IPOs is that the ...

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Which of the following is not a function of the lead underwriter in supporting the stock during the distribution period?


A) Trading against other members of the underwriting syndicate.
B) Using the overallotment option.
C) Putting as many shares as possible in friendly hands to be able to materialize the sell.
D) Avoiding the use of the "out clause" as much as possible.

E) C) and D)
F) All of the above

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Discuss some challenges with initial public offerings (IPOs).

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Establishing the price at which IPO shar...

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Sal Bender, not one of the most upstanding citizens, has just been arrested for financial fraud, after he cooked up a get-rich-quick scheme that enticed people to purchase $10 million worth of his interest-bearing bonds.He had promised the investors quarterly coupon payments of $50 each, and that he would return the face value of $1,000 at maturity in five years.The current market interest rate is 7%.His scheme was successful initially, but within four months, it blew up in his face when the police came for him at his beach house in Barbados.Based on your knowledge of bonds, what was the biggest flaw in Sal's scheme?


A) Offering such a high yield to maturity compared to the current market rate tipped off the authorities.
B) Making quarterly payments instead of semi-annual payments increased the upfront costs.
C) Using interest-bearing instead of zero-coupon bonds required him to make coupon payments.
D) There was no flaw in Sal's plan - he was just unlucky and got caught.

E) B) and D)
F) All of the above

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Which of the following activities is allowed during the quiet period?


A) Hyping the stock to help sell it.
B) Issuing an analyst report recommending the shares.
C) Reducing the price.
D) Trading in the shares by the lead underwriter.

E) None of the above
F) All of the above

Correct Answer

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