Question 1

If an investor is attempting to buy a stock that is very volatile, it is generally best to use a:

Accepted Answer

A)  market order. 
B)  limit order. 
C)  stop-loss order. 
D)  contingency order. 
A)  market order. 
B)  limit order. 
C)  stop-loss order. 
D)  contingency order.

Question 2

The agency established as the insurance company to protect investors from failure of brokerage firms is the FDIC.

Accepted Answer

A) True 
 B)False

Question 3

Most securities are sold on a regular way basis, which means the settlement date is one week after the trade date.

Accepted Answer

A) True 
 B)False

Question 4

Insider trading often occurs when mergers and takeovers are imminent.

Accepted Answer

A) True 
 B)False

Question 5

The initial margin requirement on security trades is set by the:

Accepted Answer

A)  SEC. 
B)  FINRA. 
C)  SIPC. 
D)  Federal Reserve. 
A)  SEC. 
B)  FINRA. 
C)  SIPC. 
D)  Federal Reserve.

Question 6

Margin call price is the amount borrowed divided by:

Accepted Answer

A)  number of shares x (1 - initial margin proportion). 
B)  number of shares x (1 - maintenance margin proportion). 
C)  current value of the shares purchased x (1 - initial margin proportion). 
D)  current value of the shares purchased x (1 - maintenance margin proportion). 
A)  number of shares x (1 - initial margin proportion). 
B)  number of shares x (1 - maintenance margin proportion). 
C)  current value of the shares purchased x (1 - initial margin proportion). 
D)  current value of the shares purchased x (1 - maintenance margin proportion).

Question 7

Which of the following accounts often requires an annual fee?

Accepted Answer

A)  A cash account 
B)  A wrap account 
C)  A margin account 
D)  All of the above require an annual fee 
A)  A cash account 
B)  A wrap account 
C)  A margin account 
D)  All of the above require an annual fee

Question 8

Treasury bonds can be purchased without paying transaction costs through:

Accepted Answer

A)  the U.S. Federal Reserve Bank. 
B)  Treasury Direct. 
C)  DSPs. 
D)  discount brokers. 
A)  the U.S. Federal Reserve Bank. 
B)  Treasury Direct. 
C)  DSPs. 
D)  discount brokers.

Question 9

Below what stock price will a margin call occur?

Accepted Answer

A)  $13.50 
B)  $18.00 
C)  $42.00 
D)  $54.00 
A)  $13.50 
B)  $18.00 
C)  $42.00 
D)  $54.00

Question 10

Specialists often sell short to meet public buy orders.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following laws eliminated all fixed commissions?

Accepted Answer

A)  Securities Exchange Act of 1934 
B)  Securities Acts Amendments of 1975 
C)  Investor Advisor Act of 1940 
D)  Securities Investor Protection Act of 1970 
A)  Securities Exchange Act of 1934 
B)  Securities Acts Amendments of 1975 
C)  Investor Advisor Act of 1940 
D)  Securities Investor Protection Act of 1970

Question 12

FINRA's objective is to:

Accepted Answer

A)  protect the bid-ask spread and exchange participants' profits. 
B)  protect corporations and investors. 
C)  protect investors and ensure market integrity. 
D)  ensure market integrity and protect the stock exchanges from loss. 
A)  protect the bid-ask spread and exchange participants' profits. 
B)  protect corporations and investors. 
C)  protect investors and ensure market integrity. 
D)  ensure market integrity and protect the stock exchanges from loss.

Question 13

The Securities and Exchange Commission is a division of the Department of Justice.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following statements is true regarding full-service brokers?

Accepted Answer

A)  They typically seek clients with at least $25,000 in their accounts. 
B)  They derive only a small percentage of their revenues from commissions. 
C)  They compete primarily on price and services offered. 
D)  Less than 10 percent of U.S. households now use a full-service broker. 
A)  They typically seek clients with at least $25,000 in their accounts. 
B)  They derive only a small percentage of their revenues from commissions. 
C)  They compete primarily on price and services offered. 
D)  Less than 10 percent of U.S. households now use a full-service broker.

Question 15

If a security issue is registered with the SEC, there is less chance the investor will lose money on the investment.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following statements regarding the short interest ratio is true?

Accepted Answer

A)  It is derived as total shares sold short divided by total shares outstanding. 
B)  It indicates the dollar amount needed to cover all short positions. 
C)  The higher the ratio, the more bullish investors are. 
D)  It is derived as number of shares sold short divided by average trading volume. 
A)  It is derived as total shares sold short divided by total shares outstanding. 
B)  It indicates the dollar amount needed to cover all short positions. 
C)  The higher the ratio, the more bullish investors are. 
D)  It is derived as number of shares sold short divided by average trading volume.

Question 17

Small investors often pay brokerage commissions according to the broker's chart of fees. How can this be when rates are negotiable?

Accepted Answer

Small investors are free to ne

Question 18

Under SIPC, customer accounts with brokerage firms are insured for up to $1 million.

Accepted Answer

A) True 
 B)False

Question 19

The GRD Basic Industries Index had the following values for 2018, 2019, and 2020: 157, 191 and 203, respectively. What is the 2020 value of an adjusted index assuming the 2018 value is rescaled to be 100?

Accepted Answer

A)  77 
B)  94 
C)  106 
D)  129 
A)  77 
B)  94 
C)  106 
D)  129

Question 20

Gilbert short-sold 200 shares of Chipotle at $420 per share. Gilbert's broker has an initial margin requirement of 60% on short sales and a maintenance margin of 30%. At what price would Gilbert first receive a margin call?

Accepted Answer

Initial Inflow: 200 x 420 = 84

Exam 5: How Securities Are Traded

If an investor is attempting to buy a stock that is very volatile, it is generally best to use a:

The agency established as the insurance company to protect investors from failure of brokerage firms is the FDIC.

Most securities are sold on a regular way basis, which means the settlement date is one week after the trade date.

Insider trading often occurs when mergers and takeovers are imminent.

The initial margin requirement on security trades is set by the:

Margin call price is the amount borrowed divided by:

Which of the following accounts often requires an annual fee?

Treasury bonds can be purchased without paying transaction costs through:

Below what stock price will a margin call occur?

Specialists often sell short to meet public buy orders.

Which of the following laws eliminated all fixed commissions?

FINRA's objective is to:

The Securities and Exchange Commission is a division of the Department of Justice.

Which of the following statements is true regarding full-service brokers?

If a security issue is registered with the SEC, there is less chance the investor will lose money on the investment.

Which of the following statements regarding the short interest ratio is true?

Small investors often pay brokerage commissions according to the broker's chart of fees. How can this be when rates are negotiable?

Under SIPC, customer accounts with brokerage firms are insured for up to $1 million.

The GRD Basic Industries Index had the following values for 2018, 2019, and 2020: 157, 191 and 203, respectively. What is the 2020 value of an adjusted index assuming the 2018 value is rescaled to be 100?

Gilbert short-sold 200 shares of Chipotle at $420 per share. Gilbert's broker has an initial margin requirement of 60% on short sales and a maintenance margin of 30%. At what price would Gilbert first receive a margin call?

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

The Risk and Return From Investing

Portfolio Theory

Portfolio Selection and Asset Allocation

Capital Market Theory and Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economymarket Analysis

Sectorindustry Analysis

Company Analysis

Technical Analysis

Bond Yields and Prices

Bonds: Analysis and Strategy

Options

Futures Contracts

Managing Your Financial Assets

Evaluation of Investment Performance

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