Knowledge Flashcards

A corporation issues new shares directly to existing shareholders in proportion to their current holdings through a:

Answer: Rights offering

A rights offering gives existing shareholders the right to purchase additional shares at a set price, usually below market, proportional to their current holdings.

Which of the following describes the primary market?

Answer: Where new securities are first issued to the public

The primary market is where issuers sell new securities directly to investors, with proceeds going to the issuer.

An investment company that raises a fixed amount of capital through a one-time IPO and whose shares then trade on an exchange is a:

Answer: Closed-end fund

Closed-end funds issue a fixed number of shares through an IPO, after which the shares trade on secondary markets like stocks.

Which risk refers to the chance that a bond issuer will be unable to make interest or principal payments?

Answer: Credit (default) risk

Credit risk (also called default risk) is the risk that an issuer will fail to make timely interest or principal payments on its debt.

Which of the following is a characteristic of preferred stock compared to common stock?

Answer: Priority dividend payments

Preferred stockholders receive dividends before common stockholders and have priority over common stockholders in liquidation.

The Dow Jones Industrial Average (DJIA) is best described as a:

Answer: Price-weighted index of 30 large U.S. companies

The DJIA is a price-weighted index that tracks 30 large, publicly traded U.S. companies and is one of the oldest and most-cited market benchmarks.

Under the Securities Act of 1933, the registration statement filed with the SEC for a new securities offering includes:

Answer: A prospectus disclosing material information about the offering

The registration statement includes a prospectus that provides material disclosures to help investors make informed decisions.