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Free Questions › CFA › Corporate Issuers
Free CFA Corporate Issuers Practice Questions & Answers
900 exam-style Corporate Issuers questions. Pick your answer, hit Check answer, and see the worked solution — free to start, no signup.
100% free · No login to startQuestion 721
Which of the following is a characteristic of SPACs?
Select an option first.
Correct answer: B — They raise capital before identifying a target
Explanation: B is correct because SPACs raise funds before selecting a target. A is wrong because SPACs have no operations. C is wrong because issuing new shares is not required. D is wrong because acquisitions are not guaranteed.
Question 722
What is the main reason reverse mergers declined in popularity?
Select an option first.
Correct answer: A — SPACs replaced them
Explanation: A is correct because SPACs became the preferred alternative. B is wrong because reverse mergers are legal. C is wrong because dormant companies were already listed. D is wrong because losses were not guaranteed.
Question 723
Which of the following is a key advantage of SPACs for private companies?
Select an option first.
Correct answer: B — Faster path to becoming public
Explanation: B is correct because SPACs provide a quicker route to becoming public compared with traditional IPOs. A is wrong because valuations are negotiated and not guaranteed. C is wrong because public companies must still disclose financial information. D is wrong because SPAC sponsors play a central role in selecting and acquiring the target.
Question 724
What distinguishes a SPAC from a traditional operating company?
Select an option first.
Correct answer: B — SPACs have no operating business prior to acquisition
Explanation: B is correct because SPACs are shell companies with no operations until they acquire a target. A is wrong because SPACs do not generate revenue. C is wrong because SPACs are publicly listed. D is wrong because SPACs are listed through their own IPO.
Question 725
Why might investors trust a SPAC even without knowing the acquisition target?
Select an option first.
Correct answer: B — SPAC executives’ reputations influence expectations
Explanation: B is correct because investors rely on the experience and reputation of SPAC sponsors. A is wrong because returns are not guaranteed. C is wrong because SPACs raise funds before identifying a target. D is wrong because SPACs can acquire any private company.
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Question 726
What happens to a company acquired by a SPAC?
Select an option first.
Correct answer: B — It becomes public
Explanation: B is correct because SPAC acquisitions result in the private company becoming publicly traded. A is wrong because the company becomes public, not private. C is wrong because the company continues operating. D is wrong because no IPO is required.
Question 727
Which of the following is a reason reverse mergers declined in use?
Select an option first.
Correct answer: B — SPACs offered a more structured alternative
Explanation: B is correct because SPACs replaced reverse mergers as a more transparent and structured method. A is wrong because reverse mergers remain legal. C is wrong because dormant companies used in reverse mergers were already listed. D is wrong because losses were not guaranteed.
Question 728
What is a key feature of going-private transactions?
Select an option first.
Correct answer: A — Investors buy all public shares
Explanation: A is correct because going private requires buying all publicly traded shares. B is wrong because the company is delisted. C is wrong because going private does not create a SPAC. D is wrong because going private eliminates public share issuance.
Question 729
Which trend is common in developed markets regarding public companies?
Select an option first.
Correct answer: B — Declining number of listed companies
Explanation: B is correct because mergers and private capital reduce the number of public companies. A is wrong because listings are declining. C is wrong because the trend is not flat. D is wrong because exchanges remain active.
Question 730
Which factor contributes to the decline in public companies in developed economies?
Select an option first.
Correct answer: B — Increased private capital availability
Explanation: B is correct because private equity and venture capital reduce the need for public listings. A is wrong because mergers reduce public company counts. C is wrong because listings are optional. D is wrong because private equity is abundant.
Question 731
Why do some private companies prefer to remain private?
Select an option first.
Correct answer: B — To maintain control by existing owners
Explanation: B is correct because private companies often want to preserve control. A is wrong because regulatory burden is lower privately. C is wrong because disclosure is limited. D is wrong because private companies cannot access public markets.
Question 732
Which of the following is an example of a government-owned corporation?
Select an option first.
Correct answer: A — Royal Mail
Explanation: A is correct because Royal Mail is cited as partly or fully investor-owned but government-originated. B, C, and D are wrong because these are private or public investor-owned companies.
Question 733
Why do governments create legally separate corporations?
Select an option first.
Correct answer: B — To increase transparency and accountability
Explanation: B is correct because separate corporations provide transparency to taxpayers and investors. A is wrong because audited statements are required. C is wrong because boards and management remain. D is wrong because financing is still required.
Question 734
In emerging economies, government-owned corporations often operate in which sectors?
Select an option first.
Correct answer: B — Basic commodities or energy
Explanation: B is correct because state-owned enterprises often dominate commodity and energy sectors. A, C, and D are wrong because these are not typical government-run industries.
Question 735
Which of the following is a characteristic of SPAC investors?
Select an option first.
Correct answer: B — They rely on SPAC executives’ reputations
Explanation: B is correct because investors rely on the experience and reputation of SPAC sponsors. A is wrong because the target is unknown at IPO. C is wrong because approval is not universal. D is wrong because investors can redeem shares.
Question 736
What is a key difference between IPOs and SPAC acquisitions?
Select an option first.
Correct answer: B — SPACs raise capital before identifying a target
Explanation: B is correct because SPACs raise funds before selecting a target. A is wrong because IPOs involve operating companies. C is wrong because IPOs are heavily regulated. D is wrong because SPACs do not always issue new shares.
Question 737
What is a defining feature of a direct listing?
Select an option first.
Correct answer: C — It lists existing shares only
Explanation: C is correct because direct listings list only existing shares. A is wrong because no new capital is raised. B is wrong because underwriters are not used. D is wrong because prices are market-determined.
Question 738
Which of the following is a reason companies choose an IPO over a direct listing?
Select an option first.
Correct answer: B — They need underwriter support
Explanation: B is correct because underwriters help market the shares and stabilize pricing. A is wrong because IPOs raise capital. C is wrong because both methods require filings. D is wrong because IPOs issue new shares.
Question 739
Which of the following is a reason emerging economies see more public listings?
Select an option first.
Correct answer: B — Transition to open markets
Explanation: B is correct because market liberalization and growth attract listings. A is wrong because growth is increasing. C is wrong because foreign investment increases. D is wrong because exchanges remain active.
Question 740
Which of the following is a reason developed markets see fewer public companies?
Select an option first.
Correct answer: B — Increased mergers and acquisitions
Explanation: B is correct because mergers reduce the number of independent listed companies. A is wrong because private capital is abundant. C is wrong because listings are optional. D is wrong because private equity is growing.
Question 741
Which of the following is a reason governments privatize state-owned enterprises?
Select an option first.
Correct answer: B — To attract foreign and domestic investment
Explanation: B is correct because privatization attracts private capital to expand and diversify the economy. A is wrong because access to capital increases. C is wrong because oversight continues. D is wrong because financial reporting remains.
Question 742
Which of the following is a feature of SPAC IPOs?
Select an option first.
Correct answer: A — They raise capital without identifying a target
Explanation: A is correct because SPACs raise funds before selecting a target. B is wrong because targets are chosen later. C is wrong because acquisitions are not guaranteed. D is wrong because SPACs have no operations.
Question 743
Which of the following is a characteristic of direct listings compared with IPOs?
Select an option first.
Correct answer: C — No underwriters involved
Explanation: C is correct because direct listings do not use underwriters. A is wrong because direct listings are lower cost. B is wrong because they are often faster. D is wrong because no new shares are issued.
Question 744
Which of the following best describes equity investors’ claims?
Select an option first.
Correct answer: C — Residual and unlimited in potential
Explanation: C is correct because equity holders receive whatever remains after all other obligations and have unlimited upside. A is wrong because equity claims are not fixed. B is wrong because equity is junior to debt and other obligations. D is wrong because equity is not government-guaranteed.
Question 745
Why is debt considered less costly for issuers than equity?
Select an option first.
Correct answer: B — Interest payments are tax-deductible
Explanation: B is correct because interest is tax-deductible, reducing taxable income. A is wrong because debt increases financial risk. C is wrong because debt holders do not share in profits. D is wrong because debt does not dilute shareholders.
Question 746
Why is equity riskier than debt from an investor’s perspective?
Select an option first.
Correct answer: C — Equity holders have residual claims
Explanation: C is correct because residual claims expose equity holders to greater variability in returns. A is wrong because equity payments are not fixed. B is wrong because equity is paid last. D is wrong because equity returns are not guaranteed.
Question 747
What is the maximum loss for a shareholder?
Select an option first.
Correct answer: C — Their initial investment
Explanation: C is correct because shareholders have limited liability. A is wrong because losses cannot exceed the investment. B is wrong because losses do not double. D is wrong because shareholders are not liable for company debt.
Question 748
What happens if a firm’s asset value falls below its debt obligations?
Select an option first.
Correct answer: B — The firm is insolvent
Explanation: B is correct because insolvency occurs when assets cannot cover debt. A is wrong because shareholders receive nothing in insolvency. C is wrong because debtholders never had voting rights. D is wrong because issuing equity is not mandatory.
Question 749
Which statement best describes bondholder returns?
Select an option first.
Correct answer: B — Fixed and capped
Explanation: B is correct because bondholders receive fixed interest and principal. A is wrong because upside is limited. C is wrong because returns do not depend on profits. D is wrong because shareholders do not set bondholder returns.
Question 750
Which group has residual claims on cash flows?
Select an option first.
Correct answer: D — Shareholders
Explanation: D is correct because shareholders receive what remains after all other obligations. A is wrong because debt claims are fixed. B and C are wrong because they receive contractual payments (wages, taxes).
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