Bundle: Intermediate Financial Management, 13th + MindTap Finance, 1 term (6 months) Printed Access Card
13th Edition
ISBN: 9781337817332
Author: Brigham, Eugene F., Daves, Phillip R.
Publisher: Cengage Learning
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Chapter 18, Problem 3Q
Summary Introduction
To determine: Whether SEC should, as a part of every new stock or bond offering, render an option to investors on the proper value of the securities being offered.
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The SEC attempts to protect investors who are purchasing newly issued securities by making sure that the information put out by a company and its investment banks is correct and is not misleading. However, the SEC does not providean opinion about the real value of the securities; hence, an investor might paytoo much for some new stock and consequently lose heavily. Do you think theSEC should, as a part of every new stock or bond offering, render an opinion toinvestors on the proper value of the securities being offered? Explain.
1) What would happen to the standard of living in the United States if people lost faith in our financial markets? Why?
2) How does a profitable capital market help reduce the prices of goods and services?
3) The SEC attempts to protect investors who purchase newly issued securities by requiring issuers to provide relevant financial information to potential investors. The SEC does not provide an opinion on the actual value of the securities.Therefore, a reckless investor could pay too much for some shares and consequently lose a lot. Do you think the SEC should, as part of each new offering of stocks or bonds, give investors an opinion on the appropriate value of the securities being offered? Explain
Before entering a formal agreement, investment banks carefully investigatethe companies whose securities they underwrite; this is especially true of theissues of firms going public for the first time. Because the banks do not themselves plan to hold the securities but intend to sell them to others as soon aspossible, why are they so concerned about making careful investigations?
Chapter 18 Solutions
Bundle: Intermediate Financial Management, 13th + MindTap Finance, 1 term (6 months) Printed Access Card
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- 4. Which is incorrect about financial securities? a. Financial securities are guarantees the holders in terms of their claims. b. Financial securities give stable financial return and safer environment to investors. c. Financial securities are utilized by firms to generate capitalization for firms or the government. d. Financial securities are regulated by the government to protect the investing public. e. All of the above f. None of the abovearrow_forwardWhich of the following actions would be most likely to reduce potential conflicts of interest between stockholders and bondholders? a. Compensating managers with stock options. b. Abolishing the Security and Exchange Commission. c. The use of covenants in bond agreements that limit the firm's use of additional debt and constrain managers' actions. d. Financing risky projects with additional debt. e. The threat of hostile takeovers.arrow_forwardWhich of the following statements is FALSE? When a buyer seeks to buy a stock, the willingness of other parties to sell the same stock suggests that they value the stock differently. O When private information is relegated to the hands of a relatively small number of investors, these investors may be able to profit by trading on their information. Since stock markets aggregate the information and views of many different investors, we expect the stock price to react quickly to new publicly available information as the investors continue to trade until a consensus is reached as to the new value of the stock. If the profit opportunities from having private expertise are large, other individuals will attempt to gain the expertise and devote at least as large amount of resources needed to acquire it.arrow_forward
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- The Securities and Exchange Commission may do all but which of the following acts under The Securities Enforcement Remedies and Penny Stock Reform Act of 1990? Multiple Choice It may/issue a cease-and-désist order against a violator of any federal securities law. It may suspend securities trading if prices vary excessively in a short time period. It may seek civil penalties against any violators. It may create rules to require that brokers and dealers provide information concerning prices and risk associated with the penny-stock market. APR 27 A "/ 2 Second create at least three different recoarch questions and rave O Xarrow_forwardWhich of the following is NOT a purpose of valuing financial securities? a. Valuation is used to provide sensible financial decisions.b. Valuation is used to get the intrinsic value of a financial security.c. Valuation is helpful for investors in order to determine whether to buy or sell their securitiesd. Valuation is used to predict the exact prices of financial securities.arrow_forwardWhat unfortunate lesson did the auditors learn from the situation in the Unregistered Sale of Securities case? What should auditors do when a violation of U.S. securities laws is suspected?arrow_forward
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