1)What is a prospectus? An advertisement in a financial newspaper that describes

Question

1)What is a prospectus?

An advertisement in a financial newspaper that describes a security offering.

2)Which one of the following is a preliminary prospectus?

Red herring.

3)JLK is a partnership that was formed two years ago for the purpose of creating new fad items and distributing them directly to consumers. The firm has been extremely successful thus far and has decided to incorporate and offer shares of stock to the general public. What is this type of an equity offering called?

Initial public offering.

4)The JOBS Act allows a company during a 12-month period to issue new securities through crowdfunding up to a limit of:

$1,000,000.

5)When selecting a venture capitalist, which one of the following characteristics is probably the leastimportant?

Underwriting experience.

6)Roy owns 200 shares of R.T.F., Inc. He has opted not to participate in the current rights offering by this firm. As a result, Roy will most likely be subject to:

1)What is a prospectus?

Explanation / Answer

1. Prospectus is "a document  that describes the details of a proposed security offering along with relevant information about the issuer.". In other words, prospectus is a document that has all the relevant details about the financial instrument being offered for sale to the public by a company. The financial instrument can be either stocks or bonds or it can even be fixed deposits that many company uses to mop up resources.

2. The answer is 'red herring'. It is a preliminary prospectus or a tentative prospectus. It is used by the underwriters in those cases where the issue has not yet been approved by SEC i.e. the approval is pending. It can be considered as a tentative draft.

3. The answer is 'initial public offering'. As the firm is offering its stock for sale to the public for the very first time it will be an IPO or an initial public offering.

4. The JOBS act or Jumstart our business startup act deals with funding of small businesses. Now, on October 30th, 2015 the SEC proposed some amendments which permitted companies to raise funds through crowdfunding. As per this amendment the limit is $100,000. Thus during the 12 month period, the amount of securities that can be sold through crowdfunding cannot exceed $100,000.

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