Deck 4: Securities Markets and Market Indexes

Question 1

Investment bankers operate in the:

A) primary market.
B) secondary market.
C) tertiary market.
D) fourth market.

Answer 1

A

Question 2

Nasdaq listed stocks tend to be concentrated in the:

A) aerospace industry.
B) energy industry.
C) technology industry.
D) telecommunications industry.

Answer 2

C

Question 3

BATS is a(n):

A) security market regulatory agency.
B) electronic communication network.
C) exchange traded fund (ETF).
D) security exchange.

Answer 3

D

Question 4

A block trade is defined as a transaction involving at least:

A) 1,000 shares.
B) 5,000 shares.
C) 10,000 shares.
D) 1 million shares.

Question 5

What document summarizes information about a new security issue?

A) The syndicate offer
B) The IPO
C) The prospectus
D) The shelf registration

Question 6

A computerized trading network that matches buy and sell orders electronically entered by customers is a(n):

A) national market system.
B) electronic communication network.
C) internet investment service.
D) global investment network.

Question 7

Automatic shelf registration refers to the practice of allowing seasoned issuers to file registration statements with the SEC that become effective immediately upon:

A) the filing of a "base prospectus," enabling efficient stock issue.
B) the filing of a "base prospectus," enabling efficient debt issue.
C) the filing of a "base prospectus," enabling efficient stock or debt issue.
D) the filing of a "red herring prospectus," enabling efficient stock or debt issue.

Question 8

Some OTC stocks are traded through the:

A) blue sheets.
B) red sheets.
C) pink sheets.
D) green sheets.

Question 9

In a firm commitment underwriting arrangement, the risk of placing the security is typically assumed by the:

A) issuer of the security.
B) investment bankers.
C) commercial bankers.
D) institutional investors.

Question 10

Which of the following statements about the NYSE is true?

A) The NYSE is the oldest and most prominent primary market in the U.S.
B) Specialists account for over 50 percent of the seats on the NYSE.
C) The NYSE is the oldest and most prominent secondary market in the U.S.
D) Institutional investors do not trade on the NYSE.

Question 11

A major appeal for U.S. firms selling bonds in private placements is potential:

A) lower interest expense.
B) greater regulatory protection.
C) savings from not registering with the SEC or incurring underwriting costs.
D) fewer restrictions on subsequent borrowing activities.

Question 12

A type of trading involving a basket of 15 stocks or more and often used in conjunction with arbitrage strategies is called:

A) swapping.
B) program trading.
C) day trading.
D) insider trading.

Question 13

Which exchange member is assigned to a specific trading post?

A) Commission broker
B) Floor trader
C) Specialist
D) Dealer

Question 14

Investment bankers are compensated by:

A) the underwriting spread.
B) commissions paid by the buyers of the security.
C) commission paid by the sellers of the security.
D) guaranteed investment contracts.

Question 15

An issue of common stock of which there are already shares publicly held is known as:

A) an IPO.
B) a secondary market issue.
C) an EPO.
D) a seasoned issue.

Question 16

The price that a dealer offers a stock for sale is known as the:

A) the bid quote.
B) the ask quote.
C) the closing price.
D) the specialist price.

Question 17

Nasdaq stocks:

A) are generally foreign stocks.
B) trade via the Blue Sheets.
C) are sometimes not listed on organized exchanges.
D) represent less than 1,000 companies.

Question 18

The NYSE is part of a:

A) not-for-profit corporation.
B) quasi-federal agency.
C) publicly-owned company.
D) government-sponsored agency.

Question 19

In-house trading refers to:

A) trades made only on the floor of the exchanges.
B) direct trades made between OTC dealers.
C) trades by fund managers without the use of brokers or exchanges.
D) trades made between specialists on the NYSE.

Question 20

Which statement regarding the Nasdaq Stock Market is not true?

A) It was less affected by the 2008 financial crisis than the NYSE.
B) Nasdaq dealers make a market by posting offers to buy or sell securities.
C) Stocks listed on the NYSE may also trade on Nasdaq.
D) Nasdaq's electronic trading system provides instantaneous transactions.

Question 21

The Dow Jones Industrial Average consists of high-quality stocks that are considered to be:

A) OTC stocks.
B) cyclical stocks.
C) blue-chip stocks.
D) defensive stocks.

Question 22

Stocks that are listed on the NYSE:

A) may trade on a regional exchange, but not in the OTC market.
B) may trade in the OTC market, but not on a regional exchange.
C) cannot trade on both a regional exchange and the OTC market.
D) may trade on either a regional exchange or in the OTC market.

Question 23

Which of the following limits the usefulness of the S&P 500 Index as a market benchmark?

A) It is too heavily weighted with NYSE stocks to be representative.
B) It is too difficult to calculate for the average investor.
C) Its use of a base year in its calculations affects its performance.
D) Its performance can be greatly affected by a small number of stocks.

Question 24

For a given percentage change in price, which of the following stocks would have the greatest impact on the Dow Jones Industrial Average (DJIA)? The stock with the:

A) largest market capitalization
B) highest stock price per share
C) largest number of shares outstanding
D) largest amount of free float

Question 25

The total market index is best represented by:

A) the S&P 500, which includes exactly 500 stocks.
B) the Wilshire 5000, which includes less than 5,000 different stocks.
C) the Wilshire 5000, which includes exactly 5,000 stocks.
D) the DJIA.

Question 26

The S&P 500 Index is a:

A) price-weighted index that is adjusted for free float.
B) price-weighted index that is not adjusted for free float.
C) capitalization-weighted index that is adjusted for free float.
D) capitalization-weighted index that is not adjusted for free float.

Question 27

In the investments area, an ECN is:

A) a system that matches and crosses members' security trades.
B) a computerized system that relays orders to the specialist on the exchange.
C) an index that tracks prices for equities, commodities and notes.
D) a primary market that allows firms to directly issue securities to investors.

Question 28

The type of bond with the thinnest secondary market is:

A) agency bonds.
B) corporate bonds.
C) Treasury bonds.
D) municipal bonds.

Question 29

The member that serves as the market maker in a stock on the floor of the NYSE is called the:

A) floor broker.
B) exchange governor.
C) registered trader.
D) designated market maker.

Question 30

A criticism of the Dow Jones Industrial Average (DJIA) is that:

A) it includes too few stocks.
B) it is a value-weighted average.
C) it is an equal-weighted average.
D) it includes too many risky stocks.

Question 31

Most trading of bonds in the secondary market takes place on:

A) the NYSE.
B) the American Stock Exchange.
C) the OTC.
D) the CME.

Question 32

EAFE stands for:

A) Equity Analyst in Foreign Equities
B) Exchange Automated Foreign Execution
C) Europe, Australasia, and the Far East
D) Europe, Africa, and the Far East

Question 33

The difference between the bid and the ask price is known as the:

A) commission.
B) premium.
C) quote.
D) spread.

Question 34

The MSCI EAFE index proxies for the performance of:

A) the emerging equity markets.
B) the global bond markets.
C) the foreign developed equity markets.
D) unique assets (antiques, gems, coins, stamps, etc.).

Question 35

If the market prices of each of the 30 stocks in the Dow Jones Industrial Average (DJIA) all change by the same percentage amount during a given day, which stock will have the greatest impact on the DJIA?

A) The one whose stock trades at the highest dollar price per share.
B) The one whose total equity has the highest market value.
C) The one having the lowest volatility.
D) The one with the most shares outstanding.

Question 36

The largest electronic screen-based equity securities market in the U.S. is:

A) BATS.
B) Instinet.
C) Amex.
D) Nasdaq.

Question 37

An advantage of placing a buy order for IBM on the NYSE is that:

A) there are several alternative specialists that compete for the transaction.
B) the quoted price is generally lower than the price on the regional exchanges.
C) the transaction is completed very quickly.
D) All of the above are true.

Question 38

Which of the following is a major difference between the S&P 500 Index and the Dow Jones Industrial Average (DJIA)? Relative to the DJIA, the S&P 500:

A) includes stocks with a much smaller average market capitalization.
B) includes more foreign firms.
C) is a much broader index.
D) is more stable.

Question 39

A market capitalization-weighted index obtains the current market value of each stock by:

A) averaging the trade price for each day.
B) multiplying price times shares outstanding.
C) multiplying price times daily volume.
D) dividing earnings by shares outstanding.

Question 40

Relative to the yields on corporate bonds issued in the primary market, the yields on comparable corporate bonds trading in the secondary market are:

A) much lower.
B) exactly the same.
C) slightly higher.
D) similar.

Question 41

A large public offering is often handled by a syndicate of investment banking firms, with one lead managing underwriter.

Question 42

The Nasdaq 100 Composite Index is a value-weighted index.

Question 43

In private placements, new security issues are sold directly to financial institutions.

Question 44

ECNs offer the advantages of automation, lower costs, and anonymity to its members.

Question 45

Prices of stocks traded on the NYSE are determined through supply and demand.

Question 46

Normal stock exchange hours in the U.S. are 9:30
a.m. to 4 p.m. Eastern Standard Time.

Question 47

What are the major advantages of a private placement for the issuer of securities?

Question 48

Which of the following is the major advantage to privately placing a bond?

A) The bond pays a lower interest rate.
B) The bond has less risk.
C) The direct placement offers tax advantages.
D) The firm saves issuing costs.

Question 49

Last year IBM issued shares to raise funds for expansion. The investment bank acquired IBM's entire issue, which it distributed via a syndicate. Which of the following best describes this action? The shares were issued in the:

A) primary market via an underwritten arrangement.
B) secondary market via a best-efforts arrangement.
C) primary market via a best-efforts arrangement.
D) secondary market via an underwritten arrangement.

Question 50

What is the difference between a seasoned issue and an IPO?

Question 51

Stocks traded on Nasdaq are bought and sold from specialists, who are often affiliated with brokerage firms.

Question 52

ABC Corporation arranged with Goldman Sachs to issue up to 50,000 shares of its common stock. This method of issuing securities is most likely a:

A) negotiated, best efforts arrangement.
B) competitive bid, best efforts arrangement.
C) negotiated, underwritten arrangement.
D) competitive bid, underwritten arrangement.

Question 53

All OTC stocks are included in the Nasdaq.

Question 54

The DJIA adjusts for stock splits by adjusting the market value of included stocks.

Question 55

Smaller companies with fewer publicly held shares are more likely to meet the listing requirements of the NYSE.

Question 56

Seasoned equity issues occur in the secondary market.

Question 57

Orders on Nasdaq come from market makers, ECNs, and on-line brokers.

Question 58

Sally states that the EAFE is the appropriate benchmark for her investment fund. Which of the following types of funds is Sally managing?

A) A foreign bond fund
B) An emerging markets equity fund
C) A global equity fund
D) An international equity fund

Question 59

There are only 30 stocks in the DJIA.

Question 60

What are the major similarities and differences between a designated market maker (DMM) and a dealer?

Question 61

What is the difference between a price-weighted index and a capitalization-weighted (value-weighted) index?

Question 62

Find the return on the price-, value-, and equal-weighted index for 2020.

Question 63

Find the price- and value-weighted index values for 2019 if the 2020 value is set at 10 for each index.

Question 64

How do you think the globalization of the securities markets will impact the NYSE and the Nasdaq? What specific developments do you foresee happening for the global marketplace?

Question 65

What impact does increasing institutional investing have on the markets, and what role do you think institutional investors will play in the future?

Question 66

Global Stock Index is a value-weighted index with just two stocks in the index: ABC stock and XYZ stock.
ABC ended 2018 at a price of $55 and had 1 million shares outstanding. XYZ stock ended 2018 at a price of $32 and had 4 million shares outstanding.
ABC ended 2019 at a price of $29 (after a 2-for-1 split). XYZ stock closed at $35 for 2019.
Calculate the new value of the index.

Question 67

What is Instinet and what does it offer for investors?

Question 68

An NYSE market maker awaits news of a merger involving one of the stocks in which she makes a market. Why does she set the bid-ask spread higher?

Question 69

What is the Nasdaq National Market System?

Question 70

What factors does the NYSE consider important in determining if a company should be listed on the exchange?

Question 71

Why do the DJIA and the S&P 500 have a high correlation?

Question 72

In 2018, Wendell placed a market buy order for 100 shares of AEM stock. Two years later, 2020, Walter placed a market sell order for AEM.
Assuming Wendell's broker charges $20 per trade/transaction, what annual return did Wendell earn on the stock? (Wendell received no dividends from the stock).