14-1. Markets comprised of securities with maturities of one year or less are generally referred to as: a.

money markets b. capital markets c. stock markets d. bond markets 14-2. Markets comprised of securities with maturities greater than one year are generally referred to as: a. money markets b. capital markets c. stock markets d. bond market 14-3. One of the main purposes of the capital markets is: a. to pro ide access to short-term funds b. to pro ide access to long term funds c. to allocate capital to the most efficient user d. to set arious interest rates 14-4. !n recent years "o ernment of #anada funding re$uirements ha e: a. increased and become more short term b. increased and become more long term c. decreased and become more short term d. decreased and become more long term 14-%. &ith respect to corporate bonds' all of the following are true e(cept: a. the market for corporate bonds dwarfs the market for stock b. the percentage of bond financing is affected by common share prices c. interest rate le els are less significant than common share prices d. corporate bond markets are dominated in size by the stock market 14-). * ma+or disad antage of preferred stock is: a. common stock di idends ha e a higher order of precedence b. dividends are not tax-deductible c. there is no secondary market for preferred stock d. the preferred di idend may ary greatly year to year 14-,. &hich of the following constitutes an internal source of funds: a. corporate bonds b. common stock c. commercial paper d. retained earnings and amortization cash flow 14--. .he ma+or supplier of funds for in estment is: a. the federal go ernment b. pro incial and local go ernments

c. corporations and other business entities d. households 14-/. &hich of the following characteristics of financial intermediaries is incorrect: a. they are the interface between suppliers and demanders of funds b. they increase the cost of funds to corporation and governments c. they help make the flow of funds efficient and competiti e d. they include banks' mutual funds' and credit unions 14-10. 1onresident holdings of #anadian securities are most significant in the: a. bond market b. money market c. stock market d. mortgage market 14-11. &hich of the following statements about securities markets is incorrect: a. they aid in the allocation of capital b. they pro ide li$uidity to in estors c. securities are initially placed in the secondary market d. the keep prices competiti e among alternati e security in estments 14-12. Organi2ed securities markets e(hibit all of the following characteristics e(cept: a. listings on national and regional exchanges are mutually exclusive b. each e(change has a central location where buying and selling occurs c. brokers represent the actual buyers and sellers d. securities are listed and traded with the appro al of the board of go ernors 14-13. !t would be fair to say that securities markets in the future: a. will become more competitive as an international market system develops b. will be less efficient c. will be more highly segregated than they are today d. will be less automated than today3s markets 14-14. Markets may be said to be efficient when: a. prices ad+ust rapidly to new information b. there is a continuous market with successi e trade at widely arying prices c. the market absorbs only small dollar amounts without destabili2ing prices d. all of the above are correct 14-1%. .he strong form of the efficient market hypothesis states that: a. past price information is unrelated to future prices b. prices reflect all public information c. both public and private information is reflected in security prices d. prices reflect all pri ate or inside information

1. * bond issue may be retired by:

calling the bonds if there is a call feature.

con erting the bonds 4if con ertible5 into common stock. making a single-sum payment at final maturity. all of the above. 2. 6rotecti e co enants are: to protect employees. to protect the interests of the company. to protect shareholders. to protect bondholders. 3. &hich of the following bonds offer the in estor the most protection7 First-mortgage bonds 8ebentures 9ubordinated debentures !ncome bonds 4. * company refunds its bonds for any of the following reasons EXCE ! for: to eliminate restricti e co enants. to reduce interest costs. to show higher reported profits. to issue new bonds at higher rate of interest. 5. .he call-option alue of a callable bond is likely to be high when interest rates are volatile. interest rates are low and e(pected to remain low. interest rate are high and e(pected to remain high. markets are inefficient. 1. One difference between a financial lease and operating lease is that: there is a often a call option in a financial lease. there is often an option to buy in an operating lease. an operating lease is often cancellable by the lessee. a financial lease is often cancellable by the lessee.

6. Treasury stock is: common stock issued by the :.9. go ernment. preferred stock issued by the :.9. go ernment. common stock that has been repurchased and is being held by the issuing company. a corporation3s common stock outstanding. 7. * call provision' a sinking fund' and;or conversion are used to retire bonds and preferred stock. bonds and common stock. preferred stock and common stock. only common stock. 8. 6referred shareholders3 claims on assets and income of a firm come those of creditors those of common shareholders. before< and also before after" but before after< and also after e$ual to< and e$ual to 9. 8ual classes of are common in new entures where promotional usually goes to the founders. bonds< bonds preferred stock< preferred stock common stock" common stock warrants< warrants

4. * con entional re ol ing credit agreement allows a firm: to borrow a fi(ed amount for the entire commitment period. to borrow for a short-period with a right to renew the loan during the commitment period. to possibly include a pro ision to con ert the credit agreement into a term loan contract at maturity. 2. .he principal reason for the e(istence of leasing is that: to do all of the above intermediate-term loans are difficult to obtain. . this is a type of financing unaffected by changes in ta( law. 5. .he type of lease that includes a third party' a lender' is called a4n5: companies# financial institutions# and individuals derive different benefits sale and leaseback. from owning assets. direct leasing arrangement. leasing is a renewable source of intermediate-term funds. leveraged lease. operating lease. 3. * way to analy2e whether debt or lease financing would be preferable is to: compare the net present alues under each alternati e' using the cost of capital 6. One ad antage of a financial lease is that: as the discount rate. it has a shorter maturity than term loans. compare the net present values under each alternative# using the after-tax it ne er appears as a liability on the balance sheet. cost of borrowing as the discount rate. it eliminate the needs to make periodic payments. it provides a way to indirectly depreciate land. compare the payback periods for each alternati e. compare the effecti e interest costs in ol ed for each alternati e. 7. Medium-term notes 4M.1s5 ha e maturities that range up to

one year 4but no more5. two years 4but no more5. ten years 4but no more5. thirty years $or more% 8. * direct lease' a sale and leaseback' and a leveraged lease are all e(amples 1. Letter stock is a handwritten certificate representing a corporate !O:. a mass mailing offering a security for sale. securities issued by the :nited 9tates 6ostal 9er ice. privately placed common stock that cannot be immediately resold to the general public. 2. * preliminary prospectus is known as a golden parachute. red herring. blue sky. green shoe. 3. !f an in estment banker has agreed to sell a new issue of securities on a best-efforts basis' the issue most likely in ol es an unusually large stock offering. most likely in ol es bonds instead of common stock. results in no assumption of underwriting risk by the investment banker. most likely in ol es a well-established' large company.

of operating leases. financial leases. full-ser ice leases. =off-balance sheet= methods of financing. making a market. 7. .o say that there is =asymmetric information= in the issuing of common stock or debt means that in estors ha e nearly perfect information. the markets ha e nearly perfect information. in estors ha e more accurate information than management has. management has more accurate information than investors have. 8. !n calculating the alue 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 in ol ed. the price-earnings ratio of the firm3s stock. the length of the rights offering period.

9. * best efforts offering is sometimes used in connection with a of new' long-term securities. pri ate placement 4. .he actual market alue of a right will differ from its theoretical alue for all of pri ileged subscription the following reasons EXCE ! for: public issue the size of the firm&s marginal tax rate. all of the abo e the amount of transactions costs incurred. in estor speculation. 10. permits what is known as a shelf registration. the irregular e(ercise and sale of rights o er the subscription period. 9># ?ule 144 9># ?ule 144a 5. !n a common stock rights offering the subscription price is generally: 'EC (ule )*+ set e$ual to the current market price of the stock. 9># @orm 138 set below the current market price of the stock. set abo e the current market price of the stock. 11. * company can ensure the complete success of a rights offering by making set after the stock goes =e(-rights.= use of a standby arrangement. 6. &hen the in estment banker bears the risk of not being able to sell a new o ersubscription pri ilege. security at the established price' this is known as: green shoe pro ision. a best efforts offering. shelf registration. underwriting. shelf registration. 12. .he market price of A-.-Bew #orporation3s common stock is C)0 per share'

and each share gi es its owner one subscription right. @our rights are re$uired to purchase an additional share of common stock at the subscription price of C%4 per share. !f the common stock is currently selling =rights-on'= the theoretical alue of a right is closest to C0./) ,*.-. C1.%0 C).00 13. 49ee Duestion 12 abo e.5 .he theoretical alue of one share of A-.-Bew common stock when it goes =e(-rights= is closest to C%4.00 C%-.%0 ,+/./. C%/.04 1. ?etained earning are an indication of a company3s li$uidity. the same as cash in the bank. not important when determining di idends. the cumulative earnings of the company after dividends. 2. &hich of the following is an argument for the rele ance of di idends7 !nformational content. ?eduction of uncertainty. 9ome in estors3 preference for current income. 0ll of the above. 3. *ll of the following are true of stock splits EXCE !2 market price per share is reduced after the split. the number of outstanding shares is increased. retained earnings are changed. proportional ownership is unchanged. 4. !f !an O3#onnor >nterprises' !nc.' repurchased %0 percent of its outstanding common stock from the open 4secondary5 market' the result would be a decline in >69. an increase in cash. a decrease in total assets. an increase in the number of stockholders.

14. Financial intermediaries . do not in est in new long-term securities include insurance companies and pension funds include the national and regional stock e(changes are usually underwriting syndicates 15. .he 9arbanes-O(ley *ct of 2002 49OE5 was largely a response to: a series of corporate and accounting frauds involving Enron# 0rthur 0ndersen# 1orldCom# and numerous others. a dramatic rise in the :9 trade deficit. charges of e(cessi e compensation to top corporate e(ecuti es. rising complaints by in estors and security analysts o er the financial accounting for stock options. 5. On May ,' Melbourne Mining declared a C.%0-per-share $uarterly di idend payable Fune 2- to stockholders of record on @riday' Fune ,. &hat is the latest date by which you could purchase the stock and still get the recently declared di idend7 Fune 3 3une ) Fune % Fune ) 6. *n offer by a firm to repurchase some of its own shares is known as a 8?!6. a self-tender offer. a re erse split. 7. !f an indi idual stockholder rein ests di idends under a company3s di idend rein estment plan' the rein ested di idends are not ta(able to the shareholder. taxable to the shareholder. 8. .he dividend-payout ratio is e$ual to the di idend yield plus the capital gains yield. dividends per share divided by earnings per share. di idends per share di ided by par alue per share. di idends per share di ided by current price per share.