Question 1

Asset allocation is the:

Accepted Answer

A) selection of specific securities within a particular class or industry. 
B) division of a purchase price between a cash payment and a margin loan. 
C) division of a portfolio into short and long positions. 
D) distribution of investment funds among various broad asset classes. 
E) dividing of assets into those that are hypothecated and those that are not. 
A) selection of specific securities within a particular class or industry. 
B) division of a purchase price between a cash payment and a margin loan. 
C) division of a portfolio into short and long positions. 
D) distribution of investment funds among various broad asset classes. 
E) dividing of assets into those that are hypothecated and those that are not. D

Question 2

Sarah purchased 700 shares of Detroit Motors stock at a price of $55 a share. The initial margin requirement is 60% and the maintenance margin is 35%. The effective interest rate on the margin loan is 4.5%. How much margin interest will she pay if she repays the loan in four months?

Accepted Answer

A) $227.62 
B) $303.32 
C) $417.29 
D) $530.42 
E) $647.96 
A) $227.62 
B) $303.32 
C) $417.29 
D) $530.42 
E) $647.96 A

Question 3

You own 400 shares of a stock that you purchased on margin at a price per share of $20.74. The stock is currently valued at $20 a share. Your broker advised you that your minimum equity position for this purchase is $2,800 as of today. What is the maintenance margin percentage?

Accepted Answer

A) 25% 
B) 30% 
C) 35% 
D) 40% 
E) 50% 
A) 25% 
B) 30% 
C) 35% 
D) 40% 
E) 50% C

Question 4

The SIPC:

Accepted Answer

A) guarantees investors against any loss related to an investment account held at a brokerage firm. 
B) guarantees cash balances held in brokerage accounts up to $500,000. 
C) is an agency of the federal government. 
D) protects private brokerage firms from bankruptcy. 
E) protects investors from missing assets when a brokerage firm closes. 
A) guarantees investors against any loss related to an investment account held at a brokerage firm. 
B) guarantees cash balances held in brokerage accounts up to $500,000. 
C) is an agency of the federal government. 
D) protects private brokerage firms from bankruptcy. 
E) protects investors from missing assets when a brokerage firm closes.

Question 5

Todd has $54,000 cash in his margin account. His initial margin is 60% and the maintenance margin is 35%. What is the maximum number of shares he can purchase if the price per share is $25?

Accepted Answer

A) 1,296 shares 
B) 2,160 shares 
C) 3,600 shares 
D) 5,400 shares 
E) 6,171 shares 
A) 1,296 shares 
B) 2,160 shares 
C) 3,600 shares 
D) 5,400 shares 
E) 6,171 shares

Question 6

The short interest on Blue Water Cruisers stock was 234,500 when the market opened this morning. During the day, 190,500 shares were covered and 166,100 shares were sold short. What was the short interest on this stock at the end of the trading day?

Accepted Answer

A) 210,100 shares 
B) 215,000 shares 
C) 258,900 shares 
D) 308,100 shares 
E) 591,100 shares 
A) 210,100 shares 
B) 215,000 shares 
C) 258,900 shares 
D) 308,100 shares 
E) 591,100 shares

Question 7

A company that owns income-producing real estate such as an apartment complex or a retail shopping center is called a(n):

Accepted Answer

A) REIT. 
B) SIPC. 
C) REEF. 
D) EAR. 
E) SPIC. 
A) REIT. 
B) SIPC. 
C) REEF. 
D) EAR. 
E) SPIC.

Question 8

Alfonso purchased 500 shares of Crosswinds, Inc., stock on 60% margin when the stock was selling for $35 a share. The stock is currently selling for $33 a share. What is his current equity position?

Accepted Answer

A) $5,000 
B) $6,000 
C) $9,500 
D) $16,500 
E) $17,500 
A) $5,000 
B) $6,000 
C) $9,500 
D) $16,500 
E) $17,500

Question 9

Rylee short sold 600 shares of stock at $16.25 a share. The initial margin is 75% and the maintenance margin is 50%. The stock is currently selling for $19.50 a share. What is Rylee's account equity at this time? Ignore margin interest.

Accepted Answer

A) $1,070.75 
B) $3,590.25 
C) $5,362.50 
D) $8,950.00 
E) $10,510.35 
A) $1,070.75 
B) $3,590.25 
C) $5,362.50 
D) $8,950.00 
E) $10,510.35

Question 10

To be considered liquid, a security must:

Accepted Answer

A) be held in a cash account. 
B) pay dividends. 
C) be able to be purchased on short notice. 
D) be held for less than one year. 
E) be able to be sold quickly with little, if any, price concession. 
A) be held in a cash account. 
B) pay dividends. 
C) be able to be purchased on short notice. 
D) be held for less than one year. 
E) be able to be sold quickly with little, if any, price concession.

Question 11

Tate Industries stock is selling for $16 a share. You would like to purchase as many shares of this stock as you can. Your margin account currently has available cash of $6,000 and the initial margin requirement is 75%. What is the maximum number of shares you can buy?

Accepted Answer

A) 281 shares 
B) 375 shares 
C) 300 shares 
D) 450 shares 
E) 500 shares 
A) 281 shares 
B) 375 shares 
C) 300 shares 
D) 450 shares 
E) 500 shares

Question 12

If you benefit when a security decreases in value, you have a ________ position in the security.

Accepted Answer

A) long 
B) margined 
C) short 
D) covered 
E) wrapped 
A) long 
B) margined 
C) short 
D) covered 
E) wrapped

Question 13

You purchased a stock for $18.45 a share using 70% margin. You sold the stock seven months later for $19.85 a share. You did not receive any dividend income. What was your holding period percentage return on this investment? Ignore trading costs and margin interest.

Accepted Answer

A) 8.77% 
B) 9.12% 
C) 10.84% 
D) 11.75% 
E) 12.13% 
A) 8.77% 
B) 9.12% 
C) 10.84% 
D) 11.75% 
E) 12.13%

Question 14

You recently purchased 200 shares of stock at a cost per share of $22.25. The initial margin requirement on this stock is 75% and the maintenance margin is 50%. The stock is currently valued at $24.00 a share. What is your current margin position? Ignore margin interest.

Accepted Answer

A) 73.01% 
B) 73.83% 
C) 74.95% 
D) 75.69% 
E) 76.82% 
A) 73.01% 
B) 73.83% 
C) 74.95% 
D) 75.69% 
E) 76.82%

Question 15

A short sale:

Accepted Answer

A) creates a long position in a stock. 
B) involves the borrowing of securities. 
C) is the purchase of less than 100 shares of a stock. 
D) is a bullish outlook towards a security. 
E) is the resale of a security within four hours of purchase. 
A) creates a long position in a stock. 
B) involves the borrowing of securities. 
C) is the purchase of less than 100 shares of a stock. 
D) is a bullish outlook towards a security. 
E) is the resale of a security within four hours of purchase.

Question 16

Todd has a margin account with $17,400 in available cash. The initial margin is 70% and the maintenance margin is 30%. What is the maximum number of shares he can purchase if the price per share is $44?

Accepted Answer

A) 395 shares 
B) 564 shares 
C) 698 shares 
D) 744 shares 
E) 842 shares 
A) 395 shares 
B) 564 shares 
C) 698 shares 
D) 744 shares 
E) 842 shares

Question 17

You recently purchased 1,300 shares of stock at a cost per share of $54.10. The initial margin requirement on this stock is 60% and the maintenance margin is 30%. The stock is currently valued at $42.30 a share. What is your current margin position? Ignore margin interest.

Accepted Answer

A) 46.91% 
B) 48.84% 
C) 63.05% 
D) 65.28% 
E) 78.18% 
A) 46.91% 
B) 48.84% 
C) 63.05% 
D) 65.28% 
E) 78.18%

Question 18

You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65% and the maintenance margin is 35%. What is the lowest the stock price can go before you receive a margin call?

Accepted Answer

A) $9.27 
B) $14.54 
C) $17.22 
D) $21.88 
E) $26.49 
A) $9.27 
B) $14.54 
C) $17.22 
D) $21.88 
E) $26.49

Question 19

A Roth IRA:

Accepted Answer

A) is a form of "tax-deferred" account. 
B) funds are taxed at the time you begin withdrawals. 
C) are well suited to investors nearing retirement. 
D) invests after-tax dollars. 
E) is the type of account offered by most employers. 
A) is a form of "tax-deferred" account. 
B) funds are taxed at the time you begin withdrawals. 
C) are well suited to investors nearing retirement. 
D) invests after-tax dollars. 
E) is the type of account offered by most employers.

Question 20

You purchase 500 shares of stock on margin at a cost per share of $22. The initial margin requirement is 60%. The effective interest rate on the margin loan is 6.4%. How much interest will you pay if you repay the loan in four months?

Accepted Answer

A) $68.77 
B) $91.93 
C) $102.16 
D) $112.38 
E) $117.04 
A) $68.77 
B) $91.93 
C) $102.16 
D) $112.38 
E) $117.04

Exam 2: The Investment Process

Asset allocation is the:

Sarah purchased 700 shares of Detroit Motors stock at a price of $55 a share. The initial margin requirement is 60% and the maintenance margin is 35%. The effective interest rate on the margin loan is 4.5%. How much margin interest will she pay if she repays the loan in four months?

You own 400 shares of a stock that you purchased on margin at a price per share of $20.74. The stock is currently valued at $20 a share. Your broker advised you that your minimum equity position for this purchase is $2,800 as of today. What is the maintenance margin percentage?

The SIPC:

Todd has $54,000 cash in his margin account. His initial margin is 60% and the maintenance margin is 35%. What is the maximum number of shares he can purchase if the price per share is $25?

The short interest on Blue Water Cruisers stock was 234,500 when the market opened this morning. During the day, 190,500 shares were covered and 166,100 shares were sold short. What was the short interest on this stock at the end of the trading day?

A company that owns income-producing real estate such as an apartment complex or a retail shopping center is called a(n):

Alfonso purchased 500 shares of Crosswinds, Inc., stock on 60% margin when the stock was selling for $35 a share. The stock is currently selling for $33 a share. What is his current equity position?

Rylee short sold 600 shares of stock at $16.25 a share. The initial margin is 75% and the maintenance margin is 50%. The stock is currently selling for $19.50 a share. What is Rylee's account equity at this time? Ignore margin interest.

To be considered liquid, a security must:

Tate Industries stock is selling for $16 a share. You would like to purchase as many shares of this stock as you can. Your margin account currently has available cash of $6,000 and the initial margin requirement is 75%. What is the maximum number of shares you can buy?

If you benefit when a security decreases in value, you have a ________ position in the security.

You purchased a stock for $18.45 a share using 70% margin. You sold the stock seven months later for $19.85 a share. You did not receive any dividend income. What was your holding period percentage return on this investment? Ignore trading costs and margin interest.

You recently purchased 200 shares of stock at a cost per share of $22.25. The initial margin requirement on this stock is 75% and the maintenance margin is 50%. The stock is currently valued at $24.00 a share. What is your current margin position? Ignore margin interest.

A short sale:

Todd has a margin account with $17,400 in available cash. The initial margin is 70% and the maintenance margin is 30%. What is the maximum number of shares he can purchase if the price per share is $44?

You recently purchased 1,300 shares of stock at a cost per share of $54.10. The initial margin requirement on this stock is 60% and the maintenance margin is 30%. The stock is currently valued at $42.30 a share. What is your current margin position? Ignore margin interest.

You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65% and the maintenance margin is 35%. What is the lowest the stock price can go before you receive a margin call?

A Roth IRA:

You purchase 500 shares of stock on margin at a cost per share of $22. The initial margin requirement is 60%. The effective interest rate on the margin loan is 6.4%. How much interest will you pay if you repay the loan in four months?

A Brief History of Risk and Return

Overview of Security Tips

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Diversification and Risky Asset Allocation

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Alternative Investments

Corporate and Government Bonds

Projecting Cash Flow and Earnings

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

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