The definition of going public, new issue market and IPO.

Question

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Answer 1

Question

Chapter 18, Problem 1Q

a)

Summary Introduction

To determine: The definition of going public, new issue market and IPO.

a)

Expert Solution

Explanation of Solution

If it sells products to the general public, a tightly owned company goes to the public. Going public increases asset liquidity sets a market value, encourages the raising of new equity, and enables diversification of the original owners. Going public, however, raises the cost of operation, requires disclosure of operating details and reduces control of the original owners. The new issue market is the capital market for public-going businesses, and the issue is considered an initial public offering (IPO).

b)

Summary Introduction

To determine: The definition of public offering and private placement.

b)

Expert Solution

Explanation of Solution

A public offering is an offer to the general public of new common stock; in other words, an offer in which the existing shareholders have no pre-emptive right to buy the new shares. A private placement is only one or a few investors, generally institutional investors, selling the stock. Private placement advantages include lower flotation costs and higher speed, as the issued securities are not subject to SEC registration.

c)

Summary Introduction

To determine: The definition of venture capitalist, roadshow and spread.

c)

Expert Solution

Explanation of Solution

The director of a venture capital fund is a venture capitalist. The fund raises much of its money from institutional investors and invests for equity in start-ups. The venture capitalist has a seat on the boards of directors of the companies. The senior management team and the investment banker are making presentations to potential investors before an IPO. We make presentations over a span of two weeks in ten to twenty cities, with three to five presentations a day. The spread is the difference between the price at which an underwriter sells the stock in an IPO and the proceeds passed on to the issuing company by the underwriter. In other words, it is the fee that the underwriter collects, and it is typically 7% of the bid price.

d)

Summary Introduction

To determine: The definition of Securities and Exchange Commission, registration statement, shelf registration, margin requirement, and insiders.

d)

Expert Solution

Explanation of Solution

The Securities and Exchange Commission (SEC) is a government agency that oversees new securities transactions and stock exchange operations. Together with other government agencies and self-regulation, the SEC is helping to ensure stable markets, sound brokerage firms, and lack of stock manipulation. The SEC includes the registration of securities before the securities can be sold to the public. The statement of incorporation is used to outline the company's different financial and legal details. Companies also file a master registration statement and then amend it with a short-form statement just prior to a bid. This practice is called shelf registration, as businesses are "on the shelf" putting new shares and then selling them when the price is right. Blue sky laws are laws that prevent the sale of securities with little or no support for assets. The margin is the percentage of the value of a stock lent by an investor to buy the stock. The SEC sets requirements for margins, which is the maximum debt percentage that can be used to buy a stock. The SEC also monitors transactions among the company's corporate insiders, who are the company's officers, administrators, and major shareholders.

e)

Summary Introduction

To determine: The definition of prospectus, red herring prospectus.

e)

Expert Solution

Explanation of Solution

A prospectus contains details about the issuing company and a new security issue. Before the SEC accepts the registration statement, a "red herring" or draft prospectus may be circulated to potential buyers. After the registration has become active, the securities may be offered for sale, followed by the prospectus.

f)

Summary Introduction

To determine: The definition of best efforts arrangement, underwritten arrangement.

f)

Expert Solution

Explanation of Solution

A possible plan against an underwritten sale applies to two methods of selling new stock issues. The investment banker is only committed to making every attempt to sell the stock at the cost of the deal to make the best efforts. In this situation, the issuing company is at risk of not being completely subscribed to the new issue. The investment banker agrees to buy the entire issue at a set price if the issue is underwritten and then resells the stock at the value of the bid. Therefore, the investment banker is at risk of selling the issue.

g)

Summary Introduction

To determine: The definition of project financing and securitization.

g)

Expert Solution

Explanation of Solution

Project financing is arrangements used mainly to finance large-scale capital projects such as fuel explorations, oil tankers, refineries, power plants, etc. Generally, one or more companies (sponsors) will provide the project's required equity capital, while creditors and lessors will provide the rest of the project's assets. The most important aspect of project financing is that creditors and lessors do not turn to investors; they must be compensated from the cash flows of the venture and the sponsors ' equity buffer. Securitization is the mechanism by which previously thinly traded financial instruments are transformed into a form that provides more liquidity. Securitization often refers to the case in which particular assets are lent as collateral for bonds, thereby producing asset-backed securities. Junk bonds are one example of the former; the latter is mortgage-backed securities.

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Answer 2

Question

Chapter 18, Problem 1Q

a)

Summary Introduction

To determine: The definition of going public, new issue market and IPO.

a)

Expert Solution

Explanation of Solution

If it sells products to the general public, a tightly owned company goes to the public. Going public increases asset liquidity sets a market value, encourages the raising of new equity, and enables diversification of the original owners. Going public, however, raises the cost of operation, requires disclosure of operating details and reduces control of the original owners. The new issue market is the capital market for public-going businesses, and the issue is considered an initial public offering (IPO).

b)

Summary Introduction

To determine: The definition of public offering and private placement.

b)

Expert Solution

Explanation of Solution

A public offering is an offer to the general public of new common stock; in other words, an offer in which the existing shareholders have no pre-emptive right to buy the new shares. A private placement is only one or a few investors, generally institutional investors, selling the stock. Private placement advantages include lower flotation costs and higher speed, as the issued securities are not subject to SEC registration.

c)

Summary Introduction

To determine: The definition of venture capitalist, roadshow and spread.

c)

Expert Solution

Explanation of Solution

The director of a venture capital fund is a venture capitalist. The fund raises much of its money from institutional investors and invests for equity in start-ups. The venture capitalist has a seat on the boards of directors of the companies. The senior management team and the investment banker are making presentations to potential investors before an IPO. We make presentations over a span of two weeks in ten to twenty cities, with three to five presentations a day. The spread is the difference between the price at which an underwriter sells the stock in an IPO and the proceeds passed on to the issuing company by the underwriter. In other words, it is the fee that the underwriter collects, and it is typically 7% of the bid price.

d)

Summary Introduction

To determine: The definition of Securities and Exchange Commission, registration statement, shelf registration, margin requirement, and insiders.

d)

Expert Solution

Explanation of Solution

The Securities and Exchange Commission (SEC) is a government agency that oversees new securities transactions and stock exchange operations. Together with other government agencies and self-regulation, the SEC is helping to ensure stable markets, sound brokerage firms, and lack of stock manipulation. The SEC includes the registration of securities before the securities can be sold to the public. The statement of incorporation is used to outline the company's different financial and legal details. Companies also file a master registration statement and then amend it with a short-form statement just prior to a bid. This practice is called shelf registration, as businesses are "on the shelf" putting new shares and then selling them when the price is right. Blue sky laws are laws that prevent the sale of securities with little or no support for assets. The margin is the percentage of the value of a stock lent by an investor to buy the stock. The SEC sets requirements for margins, which is the maximum debt percentage that can be used to buy a stock. The SEC also monitors transactions among the company's corporate insiders, who are the company's officers, administrators, and major shareholders.

e)

Summary Introduction

To determine: The definition of prospectus, red herring prospectus.

e)

Expert Solution

Explanation of Solution

A prospectus contains details about the issuing company and a new security issue. Before the SEC accepts the registration statement, a "red herring" or draft prospectus may be circulated to potential buyers. After the registration has become active, the securities may be offered for sale, followed by the prospectus.

f)

Summary Introduction

To determine: The definition of best efforts arrangement, underwritten arrangement.

f)

Expert Solution

Explanation of Solution

A possible plan against an underwritten sale applies to two methods of selling new stock issues. The investment banker is only committed to making every attempt to sell the stock at the cost of the deal to make the best efforts. In this situation, the issuing company is at risk of not being completely subscribed to the new issue. The investment banker agrees to buy the entire issue at a set price if the issue is underwritten and then resells the stock at the value of the bid. Therefore, the investment banker is at risk of selling the issue.

g)

Summary Introduction

To determine: The definition of project financing and securitization.

g)

Expert Solution

Explanation of Solution

Project financing is arrangements used mainly to finance large-scale capital projects such as fuel explorations, oil tankers, refineries, power plants, etc. Generally, one or more companies (sponsors) will provide the project's required equity capital, while creditors and lessors will provide the rest of the project's assets. The most important aspect of project financing is that creditors and lessors do not turn to investors; they must be compensated from the cash flows of the venture and the sponsors ' equity buffer. Securitization is the mechanism by which previously thinly traded financial instruments are transformed into a form that provides more liquidity. Securitization often refers to the case in which particular assets are lent as collateral for bonds, thereby producing asset-backed securities. Junk bonds are one example of the former; the latter is mortgage-backed securities.

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Answer 3

Question

Chapter 18, Problem 1Q

a)

Summary Introduction

To determine: The definition of going public, new issue market and IPO.

a)

Expert Solution

Explanation of Solution

If it sells products to the general public, a tightly owned company goes to the public. Going public increases asset liquidity sets a market value, encourages the raising of new equity, and enables diversification of the original owners. Going public, however, raises the cost of operation, requires disclosure of operating details and reduces control of the original owners. The new issue market is the capital market for public-going businesses, and the issue is considered an initial public offering (IPO).

b)

Summary Introduction

To determine: The definition of public offering and private placement.

b)

Expert Solution

Explanation of Solution

A public offering is an offer to the general public of new common stock; in other words, an offer in which the existing shareholders have no pre-emptive right to buy the new shares. A private placement is only one or a few investors, generally institutional investors, selling the stock. Private placement advantages include lower flotation costs and higher speed, as the issued securities are not subject to SEC registration.

c)

Summary Introduction

To determine: The definition of venture capitalist, roadshow and spread.

c)

Expert Solution

Explanation of Solution

The director of a venture capital fund is a venture capitalist. The fund raises much of its money from institutional investors and invests for equity in start-ups. The venture capitalist has a seat on the boards of directors of the companies. The senior management team and the investment banker are making presentations to potential investors before an IPO. We make presentations over a span of two weeks in ten to twenty cities, with three to five presentations a day. The spread is the difference between the price at which an underwriter sells the stock in an IPO and the proceeds passed on to the issuing company by the underwriter. In other words, it is the fee that the underwriter collects, and it is typically 7% of the bid price.

d)

Summary Introduction

To determine: The definition of Securities and Exchange Commission, registration statement, shelf registration, margin requirement, and insiders.

d)

Expert Solution

Explanation of Solution

The Securities and Exchange Commission (SEC) is a government agency that oversees new securities transactions and stock exchange operations. Together with other government agencies and self-regulation, the SEC is helping to ensure stable markets, sound brokerage firms, and lack of stock manipulation. The SEC includes the registration of securities before the securities can be sold to the public. The statement of incorporation is used to outline the company's different financial and legal details. Companies also file a master registration statement and then amend it with a short-form statement just prior to a bid. This practice is called shelf registration, as businesses are "on the shelf" putting new shares and then selling them when the price is right. Blue sky laws are laws that prevent the sale of securities with little or no support for assets. The margin is the percentage of the value of a stock lent by an investor to buy the stock. The SEC sets requirements for margins, which is the maximum debt percentage that can be used to buy a stock. The SEC also monitors transactions among the company's corporate insiders, who are the company's officers, administrators, and major shareholders.

e)

Summary Introduction

To determine: The definition of prospectus, red herring prospectus.

e)

Expert Solution

Explanation of Solution

A prospectus contains details about the issuing company and a new security issue. Before the SEC accepts the registration statement, a "red herring" or draft prospectus may be circulated to potential buyers. After the registration has become active, the securities may be offered for sale, followed by the prospectus.

f)

Summary Introduction

To determine: The definition of best efforts arrangement, underwritten arrangement.

f)

Expert Solution

Explanation of Solution

A possible plan against an underwritten sale applies to two methods of selling new stock issues. The investment banker is only committed to making every attempt to sell the stock at the cost of the deal to make the best efforts. In this situation, the issuing company is at risk of not being completely subscribed to the new issue. The investment banker agrees to buy the entire issue at a set price if the issue is underwritten and then resells the stock at the value of the bid. Therefore, the investment banker is at risk of selling the issue.

g)

Summary Introduction

To determine: The definition of project financing and securitization.

g)

Expert Solution

Explanation of Solution

Project financing is arrangements used mainly to finance large-scale capital projects such as fuel explorations, oil tankers, refineries, power plants, etc. Generally, one or more companies (sponsors) will provide the project's required equity capital, while creditors and lessors will provide the rest of the project's assets. The most important aspect of project financing is that creditors and lessors do not turn to investors; they must be compensated from the cash flows of the venture and the sponsors ' equity buffer. Securitization is the mechanism by which previously thinly traded financial instruments are transformed into a form that provides more liquidity. Securitization often refers to the case in which particular assets are lent as collateral for bonds, thereby producing asset-backed securities. Junk bonds are one example of the former; the latter is mortgage-backed securities.

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Answer 4

Question

Chapter 18, Problem 1Q

a)

Summary Introduction

To determine: The definition of going public, new issue market and IPO.

a)

Expert Solution

Explanation of Solution

If it sells products to the general public, a tightly owned company goes to the public. Going public increases asset liquidity sets a market value, encourages the raising of new equity, and enables diversification of the original owners. Going public, however, raises the cost of operation, requires disclosure of operating details and reduces control of the original owners. The new issue market is the capital market for public-going businesses, and the issue is considered an initial public offering (IPO).

b)

Summary Introduction

To determine: The definition of public offering and private placement.

b)

Expert Solution

Explanation of Solution

A public offering is an offer to the general public of new common stock; in other words, an offer in which the existing shareholders have no pre-emptive right to buy the new shares. A private placement is only one or a few investors, generally institutional investors, selling the stock. Private placement advantages include lower flotation costs and higher speed, as the issued securities are not subject to SEC registration.

c)

Summary Introduction

To determine: The definition of venture capitalist, roadshow and spread.

c)

Expert Solution

Explanation of Solution

The director of a venture capital fund is a venture capitalist. The fund raises much of its money from institutional investors and invests for equity in start-ups. The venture capitalist has a seat on the boards of directors of the companies. The senior management team and the investment banker are making presentations to potential investors before an IPO. We make presentations over a span of two weeks in ten to twenty cities, with three to five presentations a day. The spread is the difference between the price at which an underwriter sells the stock in an IPO and the proceeds passed on to the issuing company by the underwriter. In other words, it is the fee that the underwriter collects, and it is typically 7% of the bid price.

d)

Summary Introduction

To determine: The definition of Securities and Exchange Commission, registration statement, shelf registration, margin requirement, and insiders.

d)

Expert Solution

Explanation of Solution

The Securities and Exchange Commission (SEC) is a government agency that oversees new securities transactions and stock exchange operations. Together with other government agencies and self-regulation, the SEC is helping to ensure stable markets, sound brokerage firms, and lack of stock manipulation. The SEC includes the registration of securities before the securities can be sold to the public. The statement of incorporation is used to outline the company's different financial and legal details. Companies also file a master registration statement and then amend it with a short-form statement just prior to a bid. This practice is called shelf registration, as businesses are "on the shelf" putting new shares and then selling them when the price is right. Blue sky laws are laws that prevent the sale of securities with little or no support for assets. The margin is the percentage of the value of a stock lent by an investor to buy the stock. The SEC sets requirements for margins, which is the maximum debt percentage that can be used to buy a stock. The SEC also monitors transactions among the company's corporate insiders, who are the company's officers, administrators, and major shareholders.

e)

Summary Introduction

To determine: The definition of prospectus, red herring prospectus.

e)

Expert Solution

Explanation of Solution

A prospectus contains details about the issuing company and a new security issue. Before the SEC accepts the registration statement, a "red herring" or draft prospectus may be circulated to potential buyers. After the registration has become active, the securities may be offered for sale, followed by the prospectus.

f)

Summary Introduction

To determine: The definition of best efforts arrangement, underwritten arrangement.

f)

Expert Solution

Explanation of Solution

A possible plan against an underwritten sale applies to two methods of selling new stock issues. The investment banker is only committed to making every attempt to sell the stock at the cost of the deal to make the best efforts. In this situation, the issuing company is at risk of not being completely subscribed to the new issue. The investment banker agrees to buy the entire issue at a set price if the issue is underwritten and then resells the stock at the value of the bid. Therefore, the investment banker is at risk of selling the issue.

g)

Summary Introduction

To determine: The definition of project financing and securitization.

g)

Expert Solution

Explanation of Solution

Project financing is arrangements used mainly to finance large-scale capital projects such as fuel explorations, oil tankers, refineries, power plants, etc. Generally, one or more companies (sponsors) will provide the project's required equity capital, while creditors and lessors will provide the rest of the project's assets. The most important aspect of project financing is that creditors and lessors do not turn to investors; they must be compensated from the cash flows of the venture and the sponsors ' equity buffer. Securitization is the mechanism by which previously thinly traded financial instruments are transformed into a form that provides more liquidity. Securitization often refers to the case in which particular assets are lent as collateral for bonds, thereby producing asset-backed securities. Junk bonds are one example of the former; the latter is mortgage-backed securities.

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Answer 5

Chapter 18, Problem 1Q

a)

Summary Introduction

To determine: The definition of going public, new issue market and IPO.

a)

Expert Solution

Explanation of Solution

If it sells products to the general public, a tightly owned company goes to the public. Going public increases asset liquidity sets a market value, encourages the raising of new equity, and enables diversification of the original owners. Going public, however, raises the cost of operation, requires disclosure of operating details and reduces control of the original owners. The new issue market is the capital market for public-going businesses, and the issue is considered an initial public offering (IPO).

b)

Summary Introduction

To determine: The definition of public offering and private placement.

b)

Expert Solution

Explanation of Solution

A public offering is an offer to the general public of new common stock; in other words, an offer in which the existing shareholders have no pre-emptive right to buy the new shares. A private placement is only one or a few investors, generally institutional investors, selling the stock. Private placement advantages include lower flotation costs and higher speed, as the issued securities are not subject to SEC registration.

c)

Summary Introduction

To determine: The definition of venture capitalist, roadshow and spread.

c)

Expert Solution

Explanation of Solution

The director of a venture capital fund is a venture capitalist. The fund raises much of its money from institutional investors and invests for equity in start-ups. The venture capitalist has a seat on the boards of directors of the companies. The senior management team and the investment banker are making presentations to potential investors before an IPO. We make presentations over a span of two weeks in ten to twenty cities, with three to five presentations a day. The spread is the difference between the price at which an underwriter sells the stock in an IPO and the proceeds passed on to the issuing company by the underwriter. In other words, it is the fee that the underwriter collects, and it is typically 7% of the bid price.

d)

Summary Introduction

To determine: The definition of Securities and Exchange Commission, registration statement, shelf registration, margin requirement, and insiders.

d)

Expert Solution

Explanation of Solution

The Securities and Exchange Commission (SEC) is a government agency that oversees new securities transactions and stock exchange operations. Together with other government agencies and self-regulation, the SEC is helping to ensure stable markets, sound brokerage firms, and lack of stock manipulation. The SEC includes the registration of securities before the securities can be sold to the public. The statement of incorporation is used to outline the company's different financial and legal details. Companies also file a master registration statement and then amend it with a short-form statement just prior to a bid. This practice is called shelf registration, as businesses are "on the shelf" putting new shares and then selling them when the price is right. Blue sky laws are laws that prevent the sale of securities with little or no support for assets. The margin is the percentage of the value of a stock lent by an investor to buy the stock. The SEC sets requirements for margins, which is the maximum debt percentage that can be used to buy a stock. The SEC also monitors transactions among the company's corporate insiders, who are the company's officers, administrators, and major shareholders.

e)

Summary Introduction

To determine: The definition of prospectus, red herring prospectus.

e)

Expert Solution

Explanation of Solution

A prospectus contains details about the issuing company and a new security issue. Before the SEC accepts the registration statement, a "red herring" or draft prospectus may be circulated to potential buyers. After the registration has become active, the securities may be offered for sale, followed by the prospectus.

f)

Summary Introduction

To determine: The definition of best efforts arrangement, underwritten arrangement.

f)

Expert Solution

Explanation of Solution

A possible plan against an underwritten sale applies to two methods of selling new stock issues. The investment banker is only committed to making every attempt to sell the stock at the cost of the deal to make the best efforts. In this situation, the issuing company is at risk of not being completely subscribed to the new issue. The investment banker agrees to buy the entire issue at a set price if the issue is underwritten and then resells the stock at the value of the bid. Therefore, the investment banker is at risk of selling the issue.

g)

Summary Introduction

To determine: The definition of project financing and securitization.

g)

Expert Solution

Explanation of Solution

Project financing is arrangements used mainly to finance large-scale capital projects such as fuel explorations, oil tankers, refineries, power plants, etc. Generally, one or more companies (sponsors) will provide the project's required equity capital, while creditors and lessors will provide the rest of the project's assets. The most important aspect of project financing is that creditors and lessors do not turn to investors; they must be compensated from the cash flows of the venture and the sponsors ' equity buffer. Securitization is the mechanism by which previously thinly traded financial instruments are transformed into a form that provides more liquidity. Securitization often refers to the case in which particular assets are lent as collateral for bonds, thereby producing asset-backed securities. Junk bonds are one example of the former; the latter is mortgage-backed securities.

Answer 6

Chapter 18, Problem 1Q

a)

Summary Introduction

To determine: The definition of going public, new issue market and IPO.

a)

Expert Solution

Explanation of Solution

If it sells products to the general public, a tightly owned company goes to the public. Going public increases asset liquidity sets a market value, encourages the raising of new equity, and enables diversification of the original owners. Going public, however, raises the cost of operation, requires disclosure of operating details and reduces control of the original owners. The new issue market is the capital market for public-going businesses, and the issue is considered an initial public offering (IPO).

Answer 7

Chapter 18, Problem 1Q

a)

Summary Introduction

To determine: The definition of going public, new issue market and IPO.

Answer 8

a)

Expert Solution

Explanation of Solution

If it sells products to the general public, a tightly owned company goes to the public. Going public increases asset liquidity sets a market value, encourages the raising of new equity, and enables diversification of the original owners. Going public, however, raises the cost of operation, requires disclosure of operating details and reduces control of the original owners. The new issue market is the capital market for public-going businesses, and the issue is considered an initial public offering (IPO).

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

b)

Summary Introduction

To determine: The definition of public offering and private placement.

b)

Expert Solution

Explanation of Solution

A public offering is an offer to the general public of new common stock; in other words, an offer in which the existing shareholders have no pre-emptive right to buy the new shares. A private placement is only one or a few investors, generally institutional investors, selling the stock. Private placement advantages include lower flotation costs and higher speed, as the issued securities are not subject to SEC registration.

Answer 13

b)

Summary Introduction

To determine: The definition of public offering and private placement.

Answer 14

b)

Expert Solution

Explanation of Solution

A public offering is an offer to the general public of new common stock; in other words, an offer in which the existing shareholders have no pre-emptive right to buy the new shares. A private placement is only one or a few investors, generally institutional investors, selling the stock. Private placement advantages include lower flotation costs and higher speed, as the issued securities are not subject to SEC registration.

Answer 15

b)

Expert Solution

Answer 16

b)

Expert Solution

Answer 17

Expert Solution

Answer 18

c)

Summary Introduction

To determine: The definition of venture capitalist, roadshow and spread.

c)

Expert Solution

Explanation of Solution

The director of a venture capital fund is a venture capitalist. The fund raises much of its money from institutional investors and invests for equity in start-ups. The venture capitalist has a seat on the boards of directors of the companies. The senior management team and the investment banker are making presentations to potential investors before an IPO. We make presentations over a span of two weeks in ten to twenty cities, with three to five presentations a day. The spread is the difference between the price at which an underwriter sells the stock in an IPO and the proceeds passed on to the issuing company by the underwriter. In other words, it is the fee that the underwriter collects, and it is typically 7% of the bid price.

Answer 19

c)

Summary Introduction

To determine: The definition of venture capitalist, roadshow and spread.

Answer 20

c)

Expert Solution

Explanation of Solution

The director of a venture capital fund is a venture capitalist. The fund raises much of its money from institutional investors and invests for equity in start-ups. The venture capitalist has a seat on the boards of directors of the companies. The senior management team and the investment banker are making presentations to potential investors before an IPO. We make presentations over a span of two weeks in ten to twenty cities, with three to five presentations a day. The spread is the difference between the price at which an underwriter sells the stock in an IPO and the proceeds passed on to the issuing company by the underwriter. In other words, it is the fee that the underwriter collects, and it is typically 7% of the bid price.

Answer 21

c)

Expert Solution

Answer 22

c)

Expert Solution

Answer 23

Expert Solution

Answer 24

d)

Summary Introduction

To determine: The definition of Securities and Exchange Commission, registration statement, shelf registration, margin requirement, and insiders.

d)

Expert Solution

Explanation of Solution

The Securities and Exchange Commission (SEC) is a government agency that oversees new securities transactions and stock exchange operations. Together with other government agencies and self-regulation, the SEC is helping to ensure stable markets, sound brokerage firms, and lack of stock manipulation. The SEC includes the registration of securities before the securities can be sold to the public. The statement of incorporation is used to outline the company's different financial and legal details. Companies also file a master registration statement and then amend it with a short-form statement just prior to a bid. This practice is called shelf registration, as businesses are "on the shelf" putting new shares and then selling them when the price is right. Blue sky laws are laws that prevent the sale of securities with little or no support for assets. The margin is the percentage of the value of a stock lent by an investor to buy the stock. The SEC sets requirements for margins, which is the maximum debt percentage that can be used to buy a stock. The SEC also monitors transactions among the company's corporate insiders, who are the company's officers, administrators, and major shareholders.

Answer 25

d)

Summary Introduction

To determine: The definition of Securities and Exchange Commission, registration statement, shelf registration, margin requirement, and insiders.

Answer 26

d)

Expert Solution

Explanation of Solution

The Securities and Exchange Commission (SEC) is a government agency that oversees new securities transactions and stock exchange operations. Together with other government agencies and self-regulation, the SEC is helping to ensure stable markets, sound brokerage firms, and lack of stock manipulation. The SEC includes the registration of securities before the securities can be sold to the public. The statement of incorporation is used to outline the company's different financial and legal details. Companies also file a master registration statement and then amend it with a short-form statement just prior to a bid. This practice is called shelf registration, as businesses are "on the shelf" putting new shares and then selling them when the price is right. Blue sky laws are laws that prevent the sale of securities with little or no support for assets. The margin is the percentage of the value of a stock lent by an investor to buy the stock. The SEC sets requirements for margins, which is the maximum debt percentage that can be used to buy a stock. The SEC also monitors transactions among the company's corporate insiders, who are the company's officers, administrators, and major shareholders.

Answer 27

d)

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Answer 28

d)

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Answer 29

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Answer 30

e)

Summary Introduction

To determine: The definition of prospectus, red herring prospectus.

e)

Expert Solution

Explanation of Solution

A prospectus contains details about the issuing company and a new security issue. Before the SEC accepts the registration statement, a "red herring" or draft prospectus may be circulated to potential buyers. After the registration has become active, the securities may be offered for sale, followed by the prospectus.

Answer 31

e)

Summary Introduction

To determine: The definition of prospectus, red herring prospectus.

Answer 32

e)

Expert Solution

Explanation of Solution

A prospectus contains details about the issuing company and a new security issue. Before the SEC accepts the registration statement, a "red herring" or draft prospectus may be circulated to potential buyers. After the registration has become active, the securities may be offered for sale, followed by the prospectus.

Answer 33

e)

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Answer 34

e)

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Answer 35

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Answer 36

f)

Summary Introduction

To determine: The definition of best efforts arrangement, underwritten arrangement.

f)

Expert Solution

Explanation of Solution

A possible plan against an underwritten sale applies to two methods of selling new stock issues. The investment banker is only committed to making every attempt to sell the stock at the cost of the deal to make the best efforts. In this situation, the issuing company is at risk of not being completely subscribed to the new issue. The investment banker agrees to buy the entire issue at a set price if the issue is underwritten and then resells the stock at the value of the bid. Therefore, the investment banker is at risk of selling the issue.

Answer 37

f)

Summary Introduction

To determine: The definition of best efforts arrangement, underwritten arrangement.

Answer 38

f)

Expert Solution

Explanation of Solution

A possible plan against an underwritten sale applies to two methods of selling new stock issues. The investment banker is only committed to making every attempt to sell the stock at the cost of the deal to make the best efforts. In this situation, the issuing company is at risk of not being completely subscribed to the new issue. The investment banker agrees to buy the entire issue at a set price if the issue is underwritten and then resells the stock at the value of the bid. Therefore, the investment banker is at risk of selling the issue.

Answer 39

f)

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Answer 40

f)

Expert Solution

Answer 41

Expert Solution

Answer 42

g)

Summary Introduction

To determine: The definition of project financing and securitization.

g)

Expert Solution

Explanation of Solution

Project financing is arrangements used mainly to finance large-scale capital projects such as fuel explorations, oil tankers, refineries, power plants, etc. Generally, one or more companies (sponsors) will provide the project's required equity capital, while creditors and lessors will provide the rest of the project's assets. The most important aspect of project financing is that creditors and lessors do not turn to investors; they must be compensated from the cash flows of the venture and the sponsors ' equity buffer. Securitization is the mechanism by which previously thinly traded financial instruments are transformed into a form that provides more liquidity. Securitization often refers to the case in which particular assets are lent as collateral for bonds, thereby producing asset-backed securities. Junk bonds are one example of the former; the latter is mortgage-backed securities.

Answer 43

g)

Summary Introduction

To determine: The definition of project financing and securitization.

Answer 44

g)

Expert Solution

Explanation of Solution

Project financing is arrangements used mainly to finance large-scale capital projects such as fuel explorations, oil tankers, refineries, power plants, etc. Generally, one or more companies (sponsors) will provide the project's required equity capital, while creditors and lessors will provide the rest of the project's assets. The most important aspect of project financing is that creditors and lessors do not turn to investors; they must be compensated from the cash flows of the venture and the sponsors ' equity buffer. Securitization is the mechanism by which previously thinly traded financial instruments are transformed into a form that provides more liquidity. Securitization often refers to the case in which particular assets are lent as collateral for bonds, thereby producing asset-backed securities. Junk bonds are one example of the former; the latter is mortgage-backed securities.