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C214 WGU Study Guide0 Questions with
Detailed Verified Answers
Financial Securities (3 types)
⼀Answer:⼀ 1. Gov Securities(treasury bonds)- gov invest in natl
defense to freeways. Loans provide by the public to gov. When tax
revs fall short to cover expenditures, gov issues bonds from 60 days-
30yrs.
2. Corporate Bonds- Google might be looking to invest another $50
billion in low-orbiting satellites; however, because of its size, the
company cannot walk into a local bank hoping for a $50-billion loan.
Instead, Google will likely issue bonds with a face value of $1,000
that make one or two annual coupon payments a year and might be
paid back over a 20-year period.
Corporate finance is NOT devoted to understanding various types of
financial instruments; investments are. *Corporate finance focuses on
the decision making by the management of the firm.
3. Stocks- share of ownership in a co. If Google did not want to
borrow money from bondholders to finance the $50-billion low-
orbiting satellite project, Google could sell shares of ownership in the
company.
Syndicate
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⼀Answer:⼀ is a group that is temporarily formed to handle a bond
or stock issue. Syndicates are generally made up of large investment
banks or other types of institutional investors. These large investment
banks that make up a syndicate might also be the underwriters of the
security issue. An underwriter has the responsibility of determining the
value of the security and then, in some cases, the underwriter will
purchase all of the securities from the issuer and then sell them to other
investors.
Two ways a firm issuing a bond can place the bonds with a syndicate:
1. Competitive Sale- Those wishing to underwrite the bond issue will
submit bids (on bond's prices and interest rate) to the issuing firm. Firm
will then select the underwriter that offered the highest price and
lowest interest rate. Underwriter will sell bonds to various investors at
(hopefully) a slightly higher price than purchase price.
2. Negotiated Sale- like the competitive sale, a negotiated sale is the
process of underwriters submitting proposals including bids. However,
this latter type of sale involves a more thorough interview process with
the underwriters. Further, the issuing firm will carefully select the
management team that will place these bonds.
Primary Markets (Stocks & Bonds)
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⼀Answer:⼀ The primary market for stock issuance works in a similar
way to the bond primary market. However, some terminology is
different. A firm that is going public (or selling shares of ownership for
the first time) is going to perform an initial public offering (IPO). These
IPOs are sometimes called new equity offerings. However, much of the
underwriting occurs in a similar manner, which we have discussed
above.
Secondary Markets (2 types)
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⼀Answer:⼀ 1. Auction Market- an auction financial market has a
physical location and prices are determined by the highest price an
investor is willing to pay. The New York Stock Exchange (NYSE), the
world's largest secondary financial market. NYSE has a single dealer
that provides liquidity.
*Some high frequency traders provide liquidity to the rest of the
market.
*If providing liquidity becomes more risky, then dealers will increase
the spread.
*If the price of a particular stock begins to heavily fluctuate, then the
specialist will INCREASE the spread.
2. Dealer market- does not require a physical location. Securities are
bought and sold through a network of dealers that trade for
themselves. a dealer might hold inventory for particular stock and
willing to sell to those that demand the stock and buy from those that
will supply the stock. NASDAQ, (second-largest secondary market
worldly), is example of a dealer market. Most stocks that are listed on
NASDAQ have multiple dealers for each. The idea behind having
multiple dealers providing liquidity to investors is that the dealers must
compete with one another, thus lowering the cost of transacting.
Spread
C214 WGU Study Guide0 Questions with
Detailed Verified Answers
Financial Securities (3 types)
⼀Answer:⼀ 1. Gov Securities(treasury bonds)- gov invest in natl
defense to freeways. Loans provide by the public to gov. When tax
revs fall short to cover expenditures, gov issues bonds from 60 days-
30yrs.
2. Corporate Bonds- Google might be looking to invest another $50
billion in low-orbiting satellites; however, because of its size, the
company cannot walk into a local bank hoping for a $50-billion loan.
Instead, Google will likely issue bonds with a face value of $1,000
that make one or two annual coupon payments a year and might be
paid back over a 20-year period.
Corporate finance is NOT devoted to understanding various types of
financial instruments; investments are. *Corporate finance focuses on
the decision making by the management of the firm.
3. Stocks- share of ownership in a co. If Google did not want to
borrow money from bondholders to finance the $50-billion low-
orbiting satellite project, Google could sell shares of ownership in the
company.
Syndicate
, Page | 2
⼀Answer:⼀ is a group that is temporarily formed to handle a bond
or stock issue. Syndicates are generally made up of large investment
banks or other types of institutional investors. These large investment
banks that make up a syndicate might also be the underwriters of the
security issue. An underwriter has the responsibility of determining the
value of the security and then, in some cases, the underwriter will
purchase all of the securities from the issuer and then sell them to other
investors.
Two ways a firm issuing a bond can place the bonds with a syndicate:
1. Competitive Sale- Those wishing to underwrite the bond issue will
submit bids (on bond's prices and interest rate) to the issuing firm. Firm
will then select the underwriter that offered the highest price and
lowest interest rate. Underwriter will sell bonds to various investors at
(hopefully) a slightly higher price than purchase price.
2. Negotiated Sale- like the competitive sale, a negotiated sale is the
process of underwriters submitting proposals including bids. However,
this latter type of sale involves a more thorough interview process with
the underwriters. Further, the issuing firm will carefully select the
management team that will place these bonds.
Primary Markets (Stocks & Bonds)
, Page | 3
⼀Answer:⼀ The primary market for stock issuance works in a similar
way to the bond primary market. However, some terminology is
different. A firm that is going public (or selling shares of ownership for
the first time) is going to perform an initial public offering (IPO). These
IPOs are sometimes called new equity offerings. However, much of the
underwriting occurs in a similar manner, which we have discussed
above.
Secondary Markets (2 types)
, Page | 4
⼀Answer:⼀ 1. Auction Market- an auction financial market has a
physical location and prices are determined by the highest price an
investor is willing to pay. The New York Stock Exchange (NYSE), the
world's largest secondary financial market. NYSE has a single dealer
that provides liquidity.
*Some high frequency traders provide liquidity to the rest of the
market.
*If providing liquidity becomes more risky, then dealers will increase
the spread.
*If the price of a particular stock begins to heavily fluctuate, then the
specialist will INCREASE the spread.
2. Dealer market- does not require a physical location. Securities are
bought and sold through a network of dealers that trade for
themselves. a dealer might hold inventory for particular stock and
willing to sell to those that demand the stock and buy from those that
will supply the stock. NASDAQ, (second-largest secondary market
worldly), is example of a dealer market. Most stocks that are listed on
NASDAQ have multiple dealers for each. The idea behind having
multiple dealers providing liquidity to investors is that the dealers must
compete with one another, thus lowering the cost of transacting.
Spread
