5. The market for common stock Type of offering To raise external funding, many publicly owned corporations decide to sell additional shares of the company's stock in the primary markets. Such an offering is referred to as Initial Public Offering performance Company A issued its first public offering this year. The demand for the initial public offering (IPO) of the securities was less than the number of securities issued. Was this IPO oversubscribed? No Yes WAC Inc. is going public and issuing 500,000 shares of common stock. The capital raised in the IPO will fund the company's proposed expansion. A Dutch auction is used to allocate shares in the WAC IPO. The following table shows the number of shares requested by potential investors in each row. Price per Share Number of Shares Requested Bids $57 Bidder # 1 50,000 $55 Bidder # 2 100,000 $53 Bidder # 3 150,000 $51 200,000 Bidder # 4 $49 250,000 Bidder # 5 $47 Bidder # 6 300,000 Ch 02: Assignment - Financial Markets and Institutions Yes WAC Inc. is going public and issuing 500,000 shares of common stock. The capital raised Dutch auction is used to allocate shares in the WAC IPO. The following table shows the nu Number of Shares Requested Price per Share Bids Bidder # 1 $57 50,000 Bidder # 2 100,000 $55 Bidder # 3 150,000 $53 Bidder # 4 200,000 $51 Bidder # 5 250,000 $49 Bidder # 6 300,000 $47 What should be the firm's IPO offer price? $53 $51 $52 $50 Gri Type here to search 6. Stock quotes Smith Enterprises recently was profiled on a financial information website and touted as a "hot" growth stock. You acquired the stock quote shown below from that website. Smith Enterprises (NASDAQ: SME) Day's Range: 47.22 51.96 Last Trade: $51.63 52wk Range: 4:00 PM ET Trade Time: 25.48 60.71 +277 (12.09 %) Volume: Change: 1,419,317 Prev Close: 46.06 Avg Vol (3m): 1,921,518 Open: Market Cap: 47.25 1.638 P/E (ttm): Bed: N/A 23.58 EPS (ttm): Ask: N/A 1y Target Est: 0.20 (0.40 % ) 55.40 Div & Yield: The last trade time is shown to be at 4:00 PM Eastern Time. The abbreviation "ttm" stands for "trailing twelve months," and the number shown reflects data from the previous 12 months. The abbreviation "3m" reflects data from the previous 3 months What What exchange does Smith Enterprises trade on? FTSE SME NASDAQ DAX AMEX What is Smith's earnings per share (EPS) for the trailing 12 months? $1.83 $2.24 $1.97 $2.03 $2.19 How much did the price increase today over yesterday's closing price? $5.29 $5.43 $5.50 Type here to search e a $2.24 $1.97 $2.03 $2.19 How much did the price increase today over yesterday's closing price? $5.29 $5.43 $5.50 $5.57 $5.36 How heavy was the trading of Smith's stock today relative to the normal level of trading? Relatively heavy trading Average trading Relatively light trading Type here to search 7. The efficient markets hypothesis The concept of market efficiency underpins almost all financial theory and decision models. When financial markets are efficient, the price of a security the present value estimate of the firm's expected cash -such as a share of a particular corporation's common stock-should be flows discounted by its appropriate rate of return (also called the intrinsic value of the stock). Almost all financial theory and decision models assume that the financial markets are efficient. The informational efficiency of financial markets determines the ability of investors to "beat" the market and earn excess (or abnormal) returns on their investments. If the markets are efficient, they will react rapidly as new relevant information becomes available. Financial theorists have identified three levels of informational efficiency that reflect what information is incorporated in stock prices. Consider the following statement, and identify the form of capital market efficiency under the efficient market hypothesis based on this statement: Current market prices reflect all relevant publicly available information. This statement is consistent with: Strong-form efficiency Weak-form efficiency Semistrong-form efficiency This statement is consistent with: Strong-form efficiency Weak-form efficiency Semistrong-form efficiency Consider that there is a strong-form of efficiency in the markets. A pharmaceutical company announces that it has received Federal Drug Administration approval for a new allergy drug that completely prevents hay fever. The consensus analyst forecast for the company's earnings per share (EPS) is $5.00, and insiders agree with analyst expectations. They too expect that, with this new drug, earnings will drive the EPS to $5.00. What will happen when the company releases its next earnings report? The stock price will increase and settle at a new equilibrium level. The stock price will not change, because the market already incorporated that information in the stock price when the announcement about FDA approval was made. OThere will be some volatility in the stock price when the earnings report is released; it is difficult to determine the impact on the stock price. Grade It Now Save & Continue