SOLVED

1) Which of the following is an example of a primary capital market? A) The government issues new securities to raise short term funds. B) Forward contracts and derivatives are bought and sold. C) Shares that have been previously purchased are offered for sale to others. D) Equity shares held in another company are sold. E) Dealers trade in shares not listed on the stock exchanges. 2) Why does the secondary market reduce the risk of investing in debt and equity instruments? A) Offers a secure electronic forum for exchanging these securities. B) Has regulations against insider trading of these securities. C) Has minimum income requirements for its members. D) Provides a wide range of potential investment opportunities. E) Improves the liquidity of these securities. 3) The S&P/TSX Venture Composite index went from a close August 31, 2007 of 2647.81 to a close December 31, 2007 of 2839.66. What can be concluded from these statistics? A) Market capitalization increased by $191.85 million from August 31 to December 31. B) The market made a gain of 7.2% from August 31 to December 31. C) The number of trades was higher by 7.2% on August 31 compared to December 31. D) The value of the assets being traded on the TSX/Venture exchanges grew by 7.2% from August 31 and to December 31. E) The value of assets being traded on the TSX/Venture exchanges grew by $191.85 million from August 31 to December 31. 4) What is a disadvantage to many small businesses in listing on the stock exchange? A) Pressure to take on short term investments to yield shareholders immediate profits. B) Increased income taxes and capital gains tax rates on earnings. C) Increased public scrutiny of its business and financial processes. D) Increased regulations around product quality, consistency and distribution. E) Decreased flexibility in financing future projects through informal sources of capital. 5) What is an advantage to a small business in listing on the stock exchange? A) Increasing the competitive information that will be made available to it. B) Being taken over by a larger business during a period of low sales and profits. C) The guarantee of an immediate increase in earnings to initial owners through the inflow of cash from the initial share offering. D) The opportunity to raise its profile and thus improving its chances in attracting better strategic partnerships and financing opportunities. E) The significant cost reductions available for future debt and equity financing. 6) The day Michael liquidated his old portfolio and rolled the cash into a new portfolio, he calculated the market capitalization of his former holdings and set that as a baseline equal to 1000. On the day of sale it represented ownership in five companies: 1,500 shares of A selling at $23.50, 1,000 shares of B at $32.00, 6,500 shares of C at $7.29, 200 shares of D at $128.45 and 1,200 shares at $56.78 of E. A year later his old portfolio had an index value of 1102 and Michael’s new portfolio was at 872. How much more money would Michael have had if he had kept his old portfolio? A) $2,300 B) $23,000 C) $26,683 D) $43,508 E) $47,946 7) Cannery Technologies’ IPO was sold out immediately at its opening of $10 a share and closed the first day of trading at $18.25. It continued to rise for two weeks, hitting a high of $22.45, before dropping for four weeks to a low of $13.35. Two weeks later it was continuing to climb steadily surpassing $14.80. Which of the following best describes the market action in this stock? A) Had a market correction. B) Been a poor investment. C) Described a cup and handle pattern. D) Had a predictable price adjustment. E) Just offered a clear buy signal. 8) Which of the following best describes an efficient capital market? A) All information is freely available and accessible. There is no assumption that it is accurately reflected in share price. B) Not all information is freely accessible. However, that which is available, is quickly and accurately reflected in share prices. C) All information is freely available and accessible. It is also assumed that the short term profit taking perspective of most investors may lead to inaccurate share prices. D) All information is freely available, accessible and accurately reflected in share price. E) Available information is assumed not always to be accessible and what is accessible is not always reflected accurately in share price. 9) Which of the following stock patterns would a technical analyst view as most bearish? A) Cup and handle. B) Channel. C) Triangle. D) Reverse head and shoulders. E) Head and shoulders top. 10) Which of the following is a significant implication of stock market efficiency? A) The market offers managers an informed and objective critique of their performance. B) Timing of a new share issue is critical to its success. C) A search for undervalued businesses will provide lucrative take-over targets. D) Businesses must take seriously the setting of the level of risk and appropriate return on an investment. E) Altering the type of security may make the initial offering more appealing to investors. 1