Question 1

If you opt to purchase shares of stock on margin rather than with cash, you will:

Accepted Answer

A) decrease your maximum potential rate of return. 
B) increase your maximum potential rate of return. 
C) guarantee yourself a profit. 
D) eliminate any potential profit. 
E) have equal rates of return regardless of how the purchase is made. 
A) decrease your maximum potential rate of return. 
B) increase your maximum potential rate of return. 
C) guarantee yourself a profit. 
D) eliminate any potential profit. 
E) have equal rates of return regardless of how the purchase is made.

Question 2

Sarah purchased 700 shares of Detroit Motors stock at a price of $45 a share. The initial margin requirement is 70% and the maintenance margin is 30%. The effective interest rate on the margin loan is 6.5%. How much margin interest will she pay if she repays the loan in five months?

Accepted Answer

A) $187.29 
B) $204.12 
C) $217.29 
D) $230.42 
E) $251.25 
A) $187.29 
B) $204.12 
C) $217.29 
D) $230.42 
E) $251.25

Question 3

Sam is purchasing 800 shares of RPT, Inc., stock at a price per share of $24.50. What is the minimum amount the Federal Reserve will require Sam to pay in cash for this purchase?

Accepted Answer

A) $4,488 
B) $6,200 
C) $9,800 
D) $10,968 
E) $11,960 
A) $4,488 
B) $6,200 
C) $9,800 
D) $10,968 
E) $11,960

Question 4

The absolute minimum initial margin requirement is set by the:

Accepted Answer

A) individual investor. 
B) brokerage firm. 
C) Federal Reserve. 
D) Security Investors Protection Corporation. 
E) Securities and Exchange Commission. 
A) individual investor. 
B) brokerage firm. 
C) Federal Reserve. 
D) Security Investors Protection Corporation. 
E) Securities and Exchange Commission.

Question 5

What is the purpose of a margin call?

Accepted Answer

A) To inform you that your margin loan is due and payable 
B) To demand funds to increase your margin position 
C) To let you know the amount of funds that are now available for you to borrow 
D) To advise you that the interest rate on your loan has changed 
E) To remind you of the upcoming monthly payment due on your margin loan 
A) To inform you that your margin loan is due and payable 
B) To demand funds to increase your margin position 
C) To let you know the amount of funds that are now available for you to borrow 
D) To advise you that the interest rate on your loan has changed 
E) To remind you of the upcoming monthly payment due on your margin loan

Question 6

Colton would like to purchase as many shares of Apple stock (AAPL)as he is able. He currently has $10,000 in cash and the stock is selling for $250 a share. How many shares can he purchase if the initial margin is 70% and the maintenance margin is 35%?

Accepted Answer

A) 28 shares 
B) 40 shares 
C) 52 shares 
D) 57 shares 
E) 114 shares 
A) 28 shares 
B) 40 shares 
C) 52 shares 
D) 57 shares 
E) 114 shares

Question 7

Last week, you sold 300 shares of ABC stock for $6,300. The sale was a short sale with an initial margin requirement of 70%. The maintenance margin is 40%. Some positive news concerning the company was released last night and the stock price jumped this morning to $28 a share. What is your current margin position in this stock?

Accepted Answer

A) 61.33% 
B) 56.67% 
C) 48.33% 
D) 38.68% 
E) 27.50% 
A) 61.33% 
B) 56.67% 
C) 48.33% 
D) 38.68% 
E) 27.50%

Question 8

Which one of the following statements is correct?

Accepted Answer

A) The call money rate is the rate of interest brokerage firms charge on margin loans. 
B) The spread is the fee a deep-discount broker charges to execute a trade. 
C) The percentage of a purchase paid for with borrowed funds is referred to as the margin. 
D) A margin loan is treated as an asset on an account balance sheet. 
E) Margin is equal to account equity divided by the value of the securities owned. 
A) The call money rate is the rate of interest brokerage firms charge on margin loans. 
B) The spread is the fee a deep-discount broker charges to execute a trade. 
C) The percentage of a purchase paid for with borrowed funds is referred to as the margin. 
D) A margin loan is treated as an asset on an account balance sheet. 
E) Margin is equal to account equity divided by the value of the securities owned.

Question 9

Louis purchased 300 shares of stock on margin for $22.15 a share and sold the shares eleven months later for $24.50 a share. The initial margin requirement was 75% and the maintenance margin was 30%. The interest rate on the margin loan was 8.5%. He received no dividend income. What was his holding period return?

Accepted Answer

A) 7.05% 
B) 8.45% 
C) 9.88% 
D) 10.76% 
E) 11.56% 
A) 7.05% 
B) 8.45% 
C) 9.88% 
D) 10.76% 
E) 11.56%

Question 10

Seven months ago, you purchased 400 shares of stock on margin. The initial margin requirement on your account is 60% and the maintenance margin is 30%. The call money rate is 4.8% and you pay 1.85% above that rate. The purchase price was $16 a share. Today, you sold these shares for $18.00 each. What is your annualized rate of return?

Accepted Answer

A) 26.15% 
B) 33.35% 
C) 42.77% 
D) 56.87% 
E) 64.64% 
A) 26.15% 
B) 33.35% 
C) 42.77% 
D) 56.87% 
E) 64.64%

Question 11

The determination of which individual stocks to purchase within a particular asset class is referred to as:

Accepted Answer

A) security selection. 
B) asset allocation. 
C) security analysis. 
D) market timing. 
E) market selection. 
A) security selection. 
B) asset allocation. 
C) security analysis. 
D) market timing. 
E) market selection.

Question 12

You short sold 500 shares of Jasper stock at $41 a share at an initial margin of 60%. What is the highest the stock price can go before you receive a margin call if the maintenance margin is 40%.?

Accepted Answer

A) $46.86 
B) $47.08 
C) $55.50 
D) $56.90 
E) $57.40 
A) $46.86 
B) $47.08 
C) $55.50 
D) $56.90 
E) $57.40

Question 13

Rudolfo purchased 900 shares of stock for $62.20 a share and sold them ten months later for $64.60 a share. The initial margin requirement on this stock is 75% and the maintenance margin is 40%. Ignoring dividends and costs, what is his holding period return?

Accepted Answer

A) 3.72% 
B) 3.86% 
C) 4.54% 
D) 4.95% 
E) 5.14% 
A) 3.72% 
B) 3.86% 
C) 4.54% 
D) 4.95% 
E) 5.14%

Question 14

You short sold 600 shares of a stock at $52 a share. The initial margin requirement is 75% and the maintenance margin is 35%. What is the amount of your total liability for this transaction as initially shown on your account balance sheet?

Accepted Answer

A) $8,640 
B) $17,500 
C) $22,210 
D) $31,200 
E) $36,400 
A) $8,640 
B) $17,500 
C) $22,210 
D) $31,200 
E) $36,400

Question 15

Yvette recently purchased 500 shares of stock at a cost per share of $34.50. The initial margin requirement on this stock is 75% and the maintenance margin is 40%. The stock is currently valued at $36.75 a share. What is her current margin position? Ignore margin interest.

Accepted Answer

A) 74.29% 
B) 74.78% 
C) 75.70% 
D) 76.53% 
E) 76.94% 
A) 74.29% 
B) 74.78% 
C) 75.70% 
D) 76.53% 
E) 76.94%

Question 16

Which one of the following statements is correct?

Accepted Answer

A) Most brokerage agreements require that disputes be settled in a court of law. 
B) Arbitration is a formal legal process for settling disputes related to brokerage accounts. 
C) Churning is the preferred method of providing deep-discount brokerage services. 
D) Discount brokers only provide order execution services. 
E) Full-service brokers frequently provide financial planning services to clients. 
A) Most brokerage agreements require that disputes be settled in a court of law. 
B) Arbitration is a formal legal process for settling disputes related to brokerage accounts. 
C) Churning is the preferred method of providing deep-discount brokerage services. 
D) Discount brokers only provide order execution services. 
E) Full-service brokers frequently provide financial planning services to clients.

Question 17

Eight months ago, Freda purchased 500 shares of stock on margin at a price per share of $26. The initial margin requirement on her account is 60% and the maintenance margin is 40%. The call money rate is 2.5% and she pays 2% above that rate. Today, she sold these shares for $27.22 each. What is her annualized rate of return?

Accepted Answer

A) 8.88% 
B) 9.99% 
C) 10.00% 
D) 11.11% 
E) 12.22% 
A) 8.88% 
B) 9.99% 
C) 10.00% 
D) 11.11% 
E) 12.22%

Question 18

Sam purchased 500 shares of Microsoft stock which he has pledged to his broker as collateral for the loan in his margin account. This process of pledging securities is called:

Accepted Answer

A) margin calling. 
B) hypothecation. 
C) leveraging. 
D) maintaining the margin. 
E) street securitization. 
A) margin calling. 
B) hypothecation. 
C) leveraging. 
D) maintaining the margin. 
E) street securitization.

Question 19

Robin sold 800 shares of a non-dividend paying stock this morning for a total of $29,440. She had purchased these shares on margin nine months ago at a cost per share of $35. The initial margin requirement on this stock is 60% and the maintenance margin is 30%. Robin pays 1.2% over the call money rate of 4.9%. What is her total dollar return on this investment?

Accepted Answer

A) $816.48 
B) $897.29 
C) $931.41 
D) $1,164.93 
E) $1,440.00 
A) $816.48 
B) $897.29 
C) $931.41 
D) $1,164.93 
E) $1,440.00

Question 20

Kay plans to retire in two years and wishes to liquidate her account at that time. Kay has a ________ constraint.

Accepted Answer

A) resource 
B) horizon 
C) liquidity 
D) tax 
E) special circumstances 
A) resource 
B) horizon 
C) liquidity 
D) tax 
E) special circumstances

If you opt to purchase shares of stock on margin rather than with cash, you will:

Sarah purchased 700 shares of Detroit Motors stock at a price of $45 a share. The initial margin requirement is 70% and the maintenance margin is 30%. The effective interest rate on the margin loan is 6.5%. How much margin interest will she pay if she repays the loan in five months?

Sam is purchasing 800 shares of RPT, Inc., stock at a price per share of $24.50. What is the minimum amount the Federal Reserve will require Sam to pay in cash for this purchase?

The absolute minimum initial margin requirement is set by the:

What is the purpose of a margin call?

Colton would like to purchase as many shares of Apple stock (AAPL)as he is able. He currently has $10,000 in cash and the stock is selling for $250 a share. How many shares can he purchase if the initial margin is 70% and the maintenance margin is 35%?

Which one of the following statements is correct?

The determination of which individual stocks to purchase within a particular asset class is referred to as:

You short sold 500 shares of Jasper stock at $41 a share at an initial margin of 60%. What is the highest the stock price can go before you receive a margin call if the maintenance margin is 40%.?

Rudolfo purchased 900 shares of stock for $62.20 a share and sold them ten months later for $64.60 a share. The initial margin requirement on this stock is 75% and the maintenance margin is 40%. Ignoring dividends and costs, what is his holding period return?

You short sold 600 shares of a stock at $52 a share. The initial margin requirement is 75% and the maintenance margin is 35%. What is the amount of your total liability for this transaction as initially shown on your account balance sheet?

Yvette recently purchased 500 shares of stock at a cost per share of $34.50. The initial margin requirement on this stock is 75% and the maintenance margin is 40%. The stock is currently valued at $36.75 a share. What is her current margin position? Ignore margin interest.

Which one of the following statements is correct?

Sam purchased 500 shares of Microsoft stock which he has pledged to his broker as collateral for the loan in his margin account. This process of pledging securities is called:

Kay plans to retire in two years and wishes to liquidate her account at that time. Kay has a ________ constraint.

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

Filters

Exam 2: The Investment Process

If you opt to purchase shares of stock on margin rather than with cash, you will:

Sarah purchased 700 shares of Detroit Motors stock at a price of $45 a share. The initial margin requirement is 70% and the maintenance margin is 30%. The effective interest rate on the margin loan is 6.5%. How much margin interest will she pay if she repays the loan in five months?

Sam is purchasing 800 shares of RPT, Inc., stock at a price per share of $24.50. What is the minimum amount the Federal Reserve will require Sam to pay in cash for this purchase?

The absolute minimum initial margin requirement is set by the:

What is the purpose of a margin call?

Colton would like to purchase as many shares of Apple stock (AAPL)as he is able. He currently has $10,000 in cash and the stock is selling for $250 a share. How many shares can he purchase if the initial margin is 70% and the maintenance margin is 35%?

Which one of the following statements is correct?

The determination of which individual stocks to purchase within a particular asset class is referred to as:

You short sold 500 shares of Jasper stock at $41 a share at an initial margin of 60%. What is the highest the stock price can go before you receive a margin call if the maintenance margin is 40%.?

Rudolfo purchased 900 shares of stock for $62.20 a share and sold them ten months later for $64.60 a share. The initial margin requirement on this stock is 75% and the maintenance margin is 40%. Ignoring dividends and costs, what is his holding period return?

You short sold 600 shares of a stock at $52 a share. The initial margin requirement is 75% and the maintenance margin is 35%. What is the amount of your total liability for this transaction as initially shown on your account balance sheet?

Yvette recently purchased 500 shares of stock at a cost per share of $34.50. The initial margin requirement on this stock is 75% and the maintenance margin is 40%. The stock is currently valued at $36.75 a share. What is her current margin position? Ignore margin interest.

Which one of the following statements is correct?

Sam purchased 500 shares of Microsoft stock which he has pledged to his broker as collateral for the loan in his margin account. This process of pledging securities is called:

Kay plans to retire in two years and wishes to liquidate her account at that time. Kay has a ________ constraint.

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

Filters