Which of the following statements best describes capital markets? a) Secondary capital markets provide a source of liquidity for investors. b) Companies and governments use the secondary capital market to raise funds for their operations. c) Offering memorandums are used to provide details of new public issues in the capital market. d) The primary market is only for shares and the secondary market is only for bonds. Lemonica Inc. (Lemonica) is a public company that is considering a secondary equity offering to raise $10,000,000. Lemonica has been in discussions with its underwriter about the type of underwriting deal that should be used. Which of the following correctly describes a bought deal? a) The underwriter agrees to buy the securities from Lemonica for an agreedupon price and sell them to the public for the purchase price plus an underwriting spread. In this case, the underwriter bears the price risk. b) The underwriter sets up an auction for the shares. Shares will be sold for a price determined by the auction bids and the underwriter makes a commission based on a percentage of the funds raised. In this case, Lemonica bears the price risk. c) The underwriter purchases the entire issue of shares for an agreed-upon price from Lemonica and has the responsibility to sell all the shares for what it believes the market will bear. In this case, the underwriter bears the price risk. d) The underwriter agrees to sell as many shares as it thinks can be sold. The underwriter provides no guarantee as to the total proceeds to be received by Lemonica on the issue, and will receive a commission based on a percentage of funds raised. In this case, Lemonica bears the price risk. Al Airlines Corp. (AI) is a Canadian domestic airline. Today, the company announced its annual earnings to be $0.75 per share, which is $0.20 per share above what analysts had been expecting. Assuming the market is strong-form efficient, how you would expect Al's share price to react to this information? a) The price will be unaffected as only insider information impacts prices. b) The price will increase immediately to a price that incorporates the new information. c) The price will remain unchanged because prices only react to past price trends in markets. d) The price will initially increase above an appropriate price as demand for the shares responds in an exaggerated way, but it will eventually fall to the correct price. Question 16 (1 point) Over the past couple of months, share prices have been steadily increasing for Sanjay Co. (Sanjay). Today, Sanjay announced its earnings for the last quarter, which were lower than anticipated by the market. Internally, management was already aware that earnings would be lower. In a semi-strong-form efficient market, what will be the immediate impact on Sanjay's share price? a) The share price will remain unchanged since this information was already known by insiders and has been incorporated into the market price. b) The share price will increase as the share price has been steadily trending upward. c) The impact on the share price cannot be predicted. d) The share price will decrease because lower future cash flows will now be expected