Question 1

One outcome from the SEC investigation of the "Flash Crash of 2010" was

Accepted Answer

A)  a prohibition of short selling. 
B)  higher margin requirements. 
C)  approval of new circuit breakers. 
D)  establishment of electronic communications networks (ECNs). 
E)  passage of the Sarbanes-Oxley Act. 
A)  a prohibition of short selling. 
B)  higher margin requirements. 
C)  approval of new circuit breakers. 
D)  establishment of electronic communications networks (ECNs). 
E)  passage of the Sarbanes-Oxley Act.

Question 2

Firms raise capital by issuing stock

Accepted Answer

A)  in the secondary market. 
B)  in the primary market. 
C)  to unwary investors. 
D)  only on days when the market is up. 
A)  in the secondary market. 
B)  in the primary market. 
C)  to unwary investors. 
D)  only on days when the market is up.

Question 3

Shelf registration

Accepted Answer

A)  is a way of placing issues in the primary market. 
B)  allows firms to register securities for sale over a two-year period. 
C)  increases transaction costs to the issuing firm. 
D)  is a way of placing issues in the primary market and allows firms to register securities for sale over a two-year period. 
E)  is a way of placing issues in the primary market and increases transaction costs to the issuing firm. 
A)  is a way of placing issues in the primary market. 
B)  allows firms to register securities for sale over a two-year period. 
C)  increases transaction costs to the issuing firm. 
D)  is a way of placing issues in the primary market and allows firms to register securities for sale over a two-year period. 
E)  is a way of placing issues in the primary market and increases transaction costs to the issuing firm.

Question 4

Which of the following orders is most useful to short sellers who want to limit their potential losses?

Accepted Answer

A)  Limit order 
B)  Discretionary order 
C)  Limit-loss order 
D)  Stop-buy order 
A)  Limit order 
B)  Discretionary order 
C)  Limit-loss order 
D)  Stop-buy order

Question 5

What was the name of the system that introduced the NYSE to electronic trading?

Accepted Answer

A)  International Exchange 
B)  NYSE Hybrid Market 
C)  Designated Order Turnaround 
D)  NYSE Euronext 
A)  International Exchange 
B)  NYSE Hybrid Market 
C)  Designated Order Turnaround 
D)  NYSE Euronext

Question 6

Initial margin requirements are determined by

Accepted Answer

A)  the Securities and Exchange Commission. 
B)  the Federal Reserve System. 
C)  the New York Stock Exchange. 
D)  the Federal Reserve System and the New York Stock Exchange. 
A)  the Securities and Exchange Commission. 
B)  the Federal Reserve System. 
C)  the New York Stock Exchange. 
D)  the Federal Reserve System and the New York Stock Exchange.

Question 7

According to the CFA Institute Standards of Professional Conduct, CFA Institute members have responsibilities to all of the following, except

Accepted Answer

A)  the government. 
B)  the profession. 
C)  the public. 
D)  the employer. 
E)  clients and prospective clients. 
A)  the government. 
B)  the profession. 
C)  the public. 
D)  the employer. 
E)  clients and prospective clients.

Question 8

Assume you sold short 100 shares of common stock at $40 per share. The initial margin is 50%. What would be the maintenance margin if a margin call is made at a stock price of $50?

Accepted Answer

A)  40% 
B)  20% 
C)  35% 
D)  25% 
A)  40% 
B)  20% 
C)  35% 
D)  25%

Question 9

All of the following are considered new trading strategies, except

Accepted Answer

A)  high frequency trading. 
B)  algorithmic trading. 
C)  dark pools. 
D)  short selling. 
A)  high frequency trading. 
B)  algorithmic trading. 
C)  dark pools. 
D)  short selling.

Question 10

You sell short 100 shares of Loser Co. at a market price of $45 per share. Your maximum possible loss is

Accepted Answer

A)  $4,500. 
B)  unlimited. 
C)  zero. 
D)  $9,000. 
E)  Cannot be determined from the information given. 
A)  $4,500. 
B)  unlimited. 
C)  zero. 
D)  $9,000. 
E)  Cannot be determined from the information given.

Question 11

Assume you purchased 200 shares of KO common stock on margin at $70 per share from your broker. If the initial margin is 55%, how much did you borrow from the broker?

Accepted Answer

A)  $6,000 
B)  $4,000 
C)  $7,700 
D)  $7,000 
E)  $6,300 
A)  $6,000 
B)  $4,000 
C)  $7,700 
D)  $7,000 
E)  $6,300

Question 12

You sold short 100 shares of common stock at $45 per share. The initial margin is 50%. Your initial investment was

Accepted Answer

A)  $4,800. 
B)  $12,000. 
C)  $2,250. 
D)  $7,200. 
A)  $4,800. 
B)  $12,000. 
C)  $2,250. 
D)  $7,200.

Question 13

You purchased 100 shares of common stock on margin for $50 per share. The initial margin is 50%, and the stock pays no dividend. What would your rate of return be if you sell the stock at $56 per share? Ignore interest on margin.

Accepted Answer

A)  28% 
B)  33% 
C)  14% 
D)  42% 
E)  24% 
A)  28% 
B)  33% 
C)  14% 
D)  42% 
E)  24%

Question 14

You want to purchase IBM stock at $130 from your broker using as little of your own money as possible. If initial margin is 50% and you have $19,500 to invest, how many shares can you buy?

Accepted Answer

A)  150 shares 
B)  200 shares 
C)  300 shares 
D)  500 shares 
E)  25 shares 
A)  150 shares 
B)  200 shares 
C)  300 shares 
D)  500 shares 
E)  25 shares

Question 15

Assume you sold short 100 shares of common stock at $50 per share. The initial margin is 60%. What would be the maintenance margin if a margin call is made at a stock price of $60?

Accepted Answer

A)  40% 
B)  33% 
C)  35% 
D)  25% 
A)  40% 
B)  33% 
C)  35% 
D)  25%

Question 16

You sold short 300 shares of common stock at $55 per share. The initial margin is 60%. At what stock price would you receive a margin call if the maintenance margin is 35%?

Accepted Answer

A)  $51.00 
B)  $65.19 
C)  $35.22 
D)  $40.36 
A)  $51.00 
B)  $65.19 
C)  $35.22 
D)  $40.36

Question 17

You purchased 300 shares of common stock on margin for $60 per share. The initial margin is 60%, and the stock pays no dividend. What would your rate of return be if you sell the stock at $45 per share? Ignore interest on margin.

Accepted Answer

A)  25.00% 
B)  -33.33% 
C)  44.31% 
D)  -41.67% 
E)  -54.22% 
A)  25.00% 
B)  -33.33% 
C)  44.31% 
D)  -41.67% 
E)  -54.22%

Question 18

Shares for short transactions

Accepted Answer

A)  are usually borrowed from other brokers. 
B)  are typically shares held by the short seller's broker in street name. 
C)  are borrowed from commercial banks. 
D)  are typically shares held by the short seller's broker in street name and are borrowed from commercial banks. 
A)  are usually borrowed from other brokers. 
B)  are typically shares held by the short seller's broker in street name. 
C)  are borrowed from commercial banks. 
D)  are typically shares held by the short seller's broker in street name and are borrowed from commercial banks.

Question 19

Which of the following orders instructs the broker to buy at the current market price?

Accepted Answer

A)  Limit order 
B)  Discretionary order 
C)  Limit-loss order 
D)  Stop-buy order 
E)  Market order 
A)  Limit order 
B)  Discretionary order 
C)  Limit-loss order 
D)  Stop-buy order 
E)  Market order

Question 20

You want to purchase GM stock at $40 from your broker using as little of your own money as possible. If initial margin is 50% and you have $4,000 to invest, how many shares can you buy?

Accepted Answer

A)  100 shares 
B)  200 shares 
C)  50 shares 
D)  500 shares 
E)  25 shares 
A)  100 shares 
B)  200 shares 
C)  50 shares 
D)  500 shares 
E)  25 shares

Exam 3: How Securities Are Traded

One outcome from the SEC investigation of the "Flash Crash of 2010" was

Firms raise capital by issuing stock

Shelf registration

Which of the following orders is most useful to short sellers who want to limit their potential losses?

What was the name of the system that introduced the NYSE to electronic trading?

Initial margin requirements are determined by

According to the CFA Institute Standards of Professional Conduct, CFA Institute members have responsibilities to all of the following, except

Assume you sold short 100 shares of common stock at $40 per share. The initial margin is 50%. What would be the maintenance margin if a margin call is made at a stock price of $50?

All of the following are considered new trading strategies, except

You sell short 100 shares of Loser Co. at a market price of $45 per share. Your maximum possible loss is

Assume you purchased 200 shares of KO common stock on margin at $70 per share from your broker. If the initial margin is 55%, how much did you borrow from the broker?

You sold short 100 shares of common stock at $45 per share. The initial margin is 50%. Your initial investment was

You purchased 100 shares of common stock on margin for $50 per share. The initial margin is 50%, and the stock pays no dividend. What would your rate of return be if you sell the stock at $56 per share? Ignore interest on margin.

You want to purchase IBM stock at $130 from your broker using as little of your own money as possible. If initial margin is 50% and you have $19,500 to invest, how many shares can you buy?

Assume you sold short 100 shares of common stock at $50 per share. The initial margin is 60%. What would be the maintenance margin if a margin call is made at a stock price of $60?

You sold short 300 shares of common stock at $55 per share. The initial margin is 60%. At what stock price would you receive a margin call if the maintenance margin is 35%?

You purchased 300 shares of common stock on margin for $60 per share. The initial margin is 60%, and the stock pays no dividend. What would your rate of return be if you sell the stock at $45 per share? Ignore interest on margin.

Shares for short transactions

Which of the following orders instructs the broker to buy at the current market price?

You want to purchase GM stock at $40 from your broker using as little of your own money as possible. If initial margin is 50% and you have $4,000 to invest, how many shares can you buy?

The Investment Environment

Asset Classes and Financial Instruments

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

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