Intermediate Financial Management
14th Edition
ISBN: 9780357516782
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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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
2) 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 every new offering of stocks or bonds, give investors an opinion on the appropriate value of the securities being offered? Explain.
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.
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Similar questions
- Which is correct about financial securities? a. Financial securities guarantees return to investors. b. Financial securities eliminate risk that most financial managers are facing. c. Diversification spreads risk and improves expected total return. d. Financial securities protect investors against risk shocks brought by social, economic, and political events. e. All of the above f. None of the above Which is correct about debt securities? a. Debt securities make the holders owners and give them the right to vote in all matters of the firm. b. Debt securities give the holders the right to receive interest and dividends. c. Debt securities give the holders the right to be elected as board of directors or to vote them. d. Debt securities give the holders the right to convert them into stocks if the indenture states. e. All of the above f. None of the above.arrow_forward4. 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 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
- In 1996, allegations were made against Moody’s that it was issuing ratings on bonds it had not been hired to rate, in order to pressure issuers to pay for their service. How has the increasing availability and use of the internet impacted the ability of stock traders to act unethically?arrow_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_forwardTo what extent does the company’s bond issuance policies support or hinder their strategies? For example, if the company is attempting to fund operating expenses, refinance old debt, or change its capital structure, are they issuing sufficient bonds to achieve these goals? Be sure to substantiate claims.arrow_forward
- What is a credit default swap (CDS)? A form of insurance against governments and corporations going bust. A type of stock investment used to hedge short positions. A form of government regulation promoting ESG compliance.arrow_forwardFinancial assets include stocks and bonds. These are fairly simple securities that can often be valued using quoted market prices. However, there are more complex financial instruments that do not have quoted market prices. These complex securities must still be valued on the balance sheet at fair value. Generally accepted accounting principles require that the reporting entity use assumptions in valuing investments when market prices or critical valuation inputs are unobservable. What are the ethical considerations in making subjective valuations of these complex financial instruments?arrow_forwardInvestment Banks operate and earn profits by: a) Purchasing undervalued securities on the market b) Creating and marketing new financial securities for issuers. c) Underwriting existing security issues, and selling them at a discount. d) Issuing stocks and bonds based on their own credit. e) Purchasing and reselling existing undervalued stocks and bonds. f) None of the other answers.arrow_forward
- Why are foreign banks or insurance corporations cannot deposit securities with the SEC?arrow_forwardWhy do you think the Fed releases the results of the Federal Open Market Committee votes? multiple choice Releasing the voting results helps the Fed appear more transparent to the general public. There is no deliberate strategy behind releasing the voting results. Releasing the voting results helps to achieve the Fed's aim of confusing market participants about the stance of policy. Portfolio planning by company pensions plans is enhanced by the information helping maintain financial market stability.arrow_forwardBonds are fixed income securities issued by public authorities, credit institutions, companies and supranational institutions in the primary markets. The most common process for issuing bonds is through underwriting. When a bond issue is underwritten, one or more securities firms or banks, forming a syndicate, buy the entire issue of bonds from the issuer and re-sell them to investors. The security firm takes the risk of being unable to sell on the issue to end investors. Securitized bank lending such as credit card debt, car loans or mortgages can be structured into other types of fixed income products such as asset-backed securities which can be traded on exchanges just like corporate and government bonds. Required: Compute the dirty value or price of a bond five years after it had been issued with the following structures: market rate for bonds is 15%, coupon rate is 10%, maturity period is 10 years and face value is K2000. 2. Explain what it means, to a Treasurer, when a bond is…arrow_forward
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