Question

Which of the following isare) an example(s) of a capital market instrument? a Commercial paper. b. Preferred stock. c. bonds d. both 'b' and 'e'. 13. Which of the following statements is/are correct? a Apple Computer decides to issue additional stock with the assistance of its investment banker. An investor purchases some of the newly issued shares. This is a primary market transaction. b. Apple Computer decides to issue additional stock with the assistance of its investment banker. An investor purchases some of the newly issued shares. This is a secondary market transaction. c. If an investor buys existing shares of Apple stock in the open market then this is considered a secondary market transaction. d. Both 'a' and 'e'. Which of the following statements is CORRECT? a. The balance sheet gives us a picture of the firm's financial situation over a period of time. b. The four key financial statements are the balance sheet, the income statement, the statement of cash flows, and the statement of retained earnings c. The income statement gives us a snapshot of what is happening at a point in time. d. The statement of cash flows tells us how much cash the firm has in the form of currency and demand deposits. 15 Which of the following items is NOT included in current assets? a. Accounts receivable. b. Inventory c. Accounts payable. d. Cash. 16. Other things held constant, which of the following actions would increase the amount of cash on a company's balance sheet? a. The company issues new common stock. b. The company repurchases common stock. c. The company pays a dividend. d. The company purchases a new piece of equipment.

Answer 1

Solution:-

(12)

Capital market instruments refer to those instruments that are issued by a company for the purpose of meeting long-term capital needs and includes equities, preference shares, bonds, debentures, etc

Commercial paper, on the other hand, are money market instruments that are used for meeting very short term liquidity requirements.

Thus the capital market instruments among provided options are preferred stock, bonds and the correct option is option d.

(13)

When a company issues new shares in the open market, it is called a primary market transaction. On the other hands, the purchase and sale of shares already in existence are called secondary market transactions.

Thus, among the given alternative, both options a and c are correct. An investor's purchase of newly issued shares is a primary transaction and purchase of existing shares is a secondary market transaction. therefore, the correct option is option d.

(14)

- The balance sheet gives us a picture of financial position as at a particular date and not a period of time, hence the first option is not correct

- The four key financial statements are indeed the income statement, balance sheet, cash flow statement and statement of retained earnings. Hence, this option is correct

- Income statement gives us a picture over a period of time and not at a specific point of time. Hence, this option is not correct

- The statement of cash flows tells the details of various cash flows during the year, as well as the opening and closing balances of total cash and cash equivalents. It doesn't tell us details of currency and demand deposits. this option is therefore not correct

Therefore, the correct option is option b.

(15)

Accounts payable are current liabilities and not current assets. Therefore, the correct option is option c.

(16)

Repurchasing of common stock, payment of dividends and purchasing equipment results in cash outflows. Issuing common stock, however, results in cash inflow and thus increases cash balance on the company's balance sheet.

Therefore, the correct option is option a.