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Financial Statement Analysis for Investment Banks Quiz
71 Questions
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Financial Statement Analysis for Investment Banks Quiz

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@ChampionDune

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Questions and Answers

What function does the Investment Bank perform in creating capital for companies, government, and other entities?

  • Market-making
  • Proprietary Trading
  • Underwriting (correct)
  • Mergers and Acquisitions

    • Which document contains information about the issuer and is often associated with primary offerings like Initial Public Offerings (IPOs)?

  • Prospectus (correct)
  • Gross Spread
  • Road Show
  • Syndicate

    • During a firm commitment underwriting, what does the underwriter do?

  • Buys all securities at a specified price (correct)
  • Conducts market-making activities
  • Engages in proprietary trading
  • Only attempts to sell the securities

    • What is the purpose of a Best efforts bid underwriting?

    <p>Only attempts to sell the securities</p> Signup and view all the answers

    What is the role of a syndicate in an underwriting process?

    <p>Collaborate with other firms to share risk and participate in the offering</p> Signup and view all the answers

    What is settlement risk in an investment bank context?

    <p>Risk that the other side of the transaction will not deliver</p> Signup and view all the answers

    Investment banks are not involved in bringing new securities to the market.

    <p>False</p> Signup and view all the answers

    A syndicate in an underwriting process involves multiple investment banks working together.

    <p>True</p> Signup and view all the answers

    In a Best efforts bid underwriting, the underwriter commits to buying all the securities at a specified price.

    <p>False</p> Signup and view all the answers

    The gross spread in underwriting represents the difference between the buying and selling price of securities.

    <p>False</p> Signup and view all the answers

    The Investment Bank Road Show involves potential investors meeting with analysts from the company's management and investment banker.

    <p>True</p> Signup and view all the answers

    Settlement risk in investment banking refers to the risk that the other party will not deliver on the transaction.

    <p>True</p> Signup and view all the answers

    Equity securities are always in the form of common stock.

    <p>False</p> Signup and view all the answers

    Bonds with a maturity longer than 10 years are typically sold in the money market.

    <p>False</p> Signup and view all the answers

    A bond's face value is the same as its coupon rate.

    <p>False</p> Signup and view all the answers

    Preferred stock represents ownership of a corporation just like common stock.

    <p>True</p> Signup and view all the answers

    Investing in equity securities always guarantees a fixed return.

    <p>False</p> Signup and view all the answers

    The money market is where long-term financial instruments are traded.

    <p>False</p> Signup and view all the answers

    Preferred stockholders have a higher claim on a company's assets than common shareholders.

    <p>True</p> Signup and view all the answers

    Stock prices always reflect a company's current profits and dividends accurately.

    <p>False</p> Signup and view all the answers

    Companies that sell bonds are obligated to pay dividends to their investors.

    <p>False</p> Signup and view all the answers

    Investors value firms with higher profits because they are more likely to pay higher dividends.

    <p>True</p> Signup and view all the answers

    Qualcomm's stock price increased continuously from 1999 to 2003 without any fluctuations.

    <p>False</p> Signup and view all the answers

    Retaining all earnings within the firm and not paying dividends is a common strategy for companies needing funds for new investments.

    <p>True</p> Signup and view all the answers

    Debt and equity are the only two types of securities available in the financial markets.

    <p>False</p> Signup and view all the answers

    The sale of securities in the primary market is when the firm raises money from selling securities to the public for the second time.

    <p>False</p> Signup and view all the answers

    When a firm sells securities in the primary market, it doesn't receive any money in return.

    <p>False</p> Signup and view all the answers

    Investors who provide money directly to firms in the securities markets can be compared to investors who deposit money in commercial banks for loans.

    <p>True</p> Signup and view all the answers

    The cash flow earned from a firm's investments is always distributed to shareholders as dividends.

    <p>False</p> Signup and view all the answers

    All funds raised in the securities markets are immediately invested by the firm in tangible assets like real estate or factories.

    <p>False</p> Signup and view all the answers

    Common stock provides a promised set of interest payments and a schedule for the repayment of principal, like a bond.

    <p>False</p> Signup and view all the answers

    Investors who purchase common stock are not the residual owners of the firm.

    <p>False</p> Signup and view all the answers

    As an owner of Disney's stock, you have unlimited voting rights.

    <p>False</p> Signup and view all the answers

    Purchasing more shares of Disney's common stock increases the portion of Disney that you own.

    <p>True</p> Signup and view all the answers

    The more shares you buy, the smaller the portion of Disney you own.

    <p>False</p> Signup and view all the answers

    100 shares of Disney's stock represent about 0.00000617 percent of Disney's total shares.

    <p>True</p> Signup and view all the answers

    Preferred shareholders always receive dividends before common stockholders.

    <p>True</p> Signup and view all the answers

    If a company does not earn enough to pay interest expenses, common stockholders will still receive a dividend.

    <p>False</p> Signup and view all the answers

    Dividends promised to preferred stockholders do not accrue and need not be paid in full before common shareholders can receive any dividends.

    <p>False</p> Signup and view all the answers

    Cumulative preferred stock is often associated with the feature where dividends must be paid in full before common stockholders receive any dividends.

    <p>True</p> Signup and view all the answers

    Preferred stockholders have a preferred claim on the distribution of assets if a firm goes bankrupt, followed by common stockholders.

    <p>True</p> Signup and view all the answers

    All firms issue cumulative preferred stock with the feature where dividends must be paid in full to preferred stockholders first.

    <p>False</p> Signup and view all the answers

    What term is used for debt sold in the short-term debt market that must be repaid in less than a year?

    <p>Note</p> Signup and view all the answers

    What type of securities represent ownership of a corporation?

    <p>Common stock</p> Signup and view all the answers

    What is the interest rate payment per year for a bond with a face value of PHP1,000 that pays an 8 percent coupon rate with two payments per year?

    <p>PHP80</p> Signup and view all the answers

    In the context of securities, what does it mean when it is mentioned that equity securities provide 'unlimited voting rights'?

    <p>Each share provides one vote in corporate decisions</p> Signup and view all the answers

    What is the market where bonds with maturity longer than 10 years are typically sold?

    <p>Capital market</p> Signup and view all the answers

    What type of securities would typically pay a fixed interest rate throughout its lifetime?

    <p>Bonds</p> Signup and view all the answers

    What is one benefit of holding preferred stock over common stock?

    <p>Priority in dividend payments</p> Signup and view all the answers

    What is the primary market?

    <p>Where firms sell securities to the public for the first time</p> Signup and view all the answers

    Why might a company choose not to pay dividends to its shareholders?

    <p>To invest in new projects</p> Signup and view all the answers

    What does a firm do in step 2 of raising money in the securities markets?

    <p>Invest the funds raised in its business</p> Signup and view all the answers

    How did Qualcomm's stock price fluctuate between 1999 and 2003?

    <p>Sharp increase then sharp decrease</p> Signup and view all the answers

    What is the purpose of debt securities in the financial markets?

    <p>Allow firms to raise money by borrowing</p> Signup and view all the answers

    Why do investors generally value firms with higher profits?

    <p>Likelihood of higher dividends</p> Signup and view all the answers

    What is the main difference between debt and equity securities?

    <p>Equity securities represent ownership in the firm</p> Signup and view all the answers

    What does the term 'cumulative preferred stock' typically entail?

    <p>Dividends paid in full before common shareholders</p> Signup and view all the answers

    Which investment alternative falls under the category of debt securities?

    <p>Borrowing by buying debt securities</p> Signup and view all the answers

    When a firm initially sells securities, what type of market is this transaction considered?

    <p>Primary market</p> Signup and view all the answers

    What is a key difference between a bond and an equity security?

    <p>Equity securities do not guarantee fixed interest payments.</p> Signup and view all the answers

    Which of the following statements about owning Disney's common stock is true?

    <p>Ownership of Disney's stock represents equity ownership in a corporation.</p> Signup and view all the answers

    What percentage of Disney's shares do 100 shares of Disney's common stock represent?

    <p>0.00000617%</p> Signup and view all the answers

    As a common stockholder, when do you earn returns on your investment?

    <p>after all other security-holder claims are satisfied.</p> Signup and view all the answers

    What do common stockholders become once all other security-holder claims are met?

    <p><strong>Residual owners</strong></p> Signup and view all the answers

    What kind of ownership rights do common stockholders have?

    <p><strong>Limited voting rights</strong></p> Signup and view all the answers

    What is the primary characteristic of cumulative preferred stock?

    <p>Dividends to preferred shareholders must be paid in full before common stockholders receive any dividends.</p> Signup and view all the answers

    What happens if a company does not earn enough to pay its interest expenses?

    <p>Neither preferred nor common stockholders will be paid a dividend.</p> Signup and view all the answers

    What is the significance of cumulative feature in preferred stock?

    <p>It ensures that preferred stockholders are paid before common stockholders in case of dividends.</p> Signup and view all the answers

    In the event of bankruptcy, what is the order of priority for distributing assets?

    <p>Preferred stockholders, creditors (bondholders), Preferred stockholders,and then common stockholders.</p> Signup and view all the answers

    What is the term used to describe preferred stock where dividends accrue and must be paid in full before common shareholders receive any dividends?

    <p>Cumulative feature</p> Signup and view all the answers

    How are distributions of assets handled in bankruptcy for a firm that issued cumulative preferred stock?

    <p>Preferred shareholders must be paid in full before common shareholders receive any distributions.</p> Signup and view all the answers

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