Question 1

Jack is researching chemical companies to determine which company's stock he should purchase. This process is known as:

Accepted Answer

A) market timing. 
B) purchase shorting. 
C) marketing research. 
D) asset allocation. 
E) security selection. 
A) market timing. 
B) purchase shorting. 
C) marketing research. 
D) asset allocation. 
E) security selection.

Question 2

Staci just used $6,000 of cash plus a $3,500 margin loan to purchase $9,500 worth of stock. This is the only transaction in her brokerage account. According to her account balance sheet, she now has account equity of:

Accepted Answer

A) $2,500. 
B) $3,500. 
C) $6,000. 
D) $9,500. 
E) $19,000. 
A) $2,500. 
B) $3,500. 
C) $6,000. 
D) $9,500. 
E) $19,000.

Question 3

Which one of the following best describes the term "initial margin"?

Accepted Answer

A) Amount of money that must be deposited to open a margin account with a broker 
B) Amount of cash that must be paid to purchase a security on margin 
C) Amount of cash that must be paid when a broker issues a margin call 
D) Amount of money borrowed when a security is purchased 
E) Total loan amount offered to a customer by a brokerage firm to cover future purchases 
A) Amount of money that must be deposited to open a margin account with a broker 
B) Amount of cash that must be paid to purchase a security on margin 
C) Amount of cash that must be paid when a broker issues a margin call 
D) Amount of money borrowed when a security is purchased 
E) Total loan amount offered to a customer by a brokerage firm to cover future purchases

Question 4

Which one of the following is generally true concerning securities held in street name?

Accepted Answer

A) The securities are registered under your mailing address rather than your name. 
B) There is a greater likelihood the security may be stolen. 
C) All dividend checks are mailed to your street address. 
D) The annual stock report is mailed directly to your street address. 
E) The brokerage firm is the owner of record. 
A) The securities are registered under your mailing address rather than your name. 
B) There is a greater likelihood the security may be stolen. 
C) All dividend checks are mailed to your street address. 
D) The annual stock report is mailed directly to your street address. 
E) The brokerage firm is the owner of record.

Question 5

You just sold 1,200 shares of stock short at a price per share of $13.50. The initial margin requirement is 60% and the maintenance margin is 30%. What is your initial equity position?

Accepted Answer

A) $6,480 
B) $7,520 
C) $9,720 
D) $10,520 
E) $16,200 
A) $6,480 
B) $7,520 
C) $9,720 
D) $10,520 
E) $16,200

Question 6

Donna recently purchased 600 shares of Deltona stock for $37 a share. Her broker required a cash payment of $16,650, plus trading costs, for the purchase. What is the initial margin requirement on this stock?

Accepted Answer

A) 60% 
B) 65% 
C) 75% 
D) 80% 
E) 90% 
A) 60% 
B) 65% 
C) 75% 
D) 80% 
E) 90%

Question 7

Rosita purchased 500 shares of a stock for $25 a share. Today, the stock is selling for $30 a share. The initial margin requirement is 65% and the maintenance margin is 30%. Rosita had to pay ________ in cash to purchase the stock and must have at least ________ in equity today.

Accepted Answer

A) $4,500; $3,690 
B) $4,500; $4,500 
C) $4,500; $8,125 
D) $8,125; $3,690 
E) $8,125; $4,500 
A) $4,500; $3,690 
B) $4,500; $4,500 
C) $4,500; $8,125 
D) $8,125; $3,690 
E) $8,125; $4,500

Question 8

If you ignore a margin call, your broker:

Accepted Answer

A) will seize all the assets in your account. 
B) will close your account. 
C) may place a short sale on your behalf to cover the amount of the call. 
D) may sell some of your securities to repay the margin loan. 
E) will increase both your margin loan and the rate of interest on that loan. 
A) will seize all the assets in your account. 
B) will close your account. 
C) may place a short sale on your behalf to cover the amount of the call. 
D) may sell some of your securities to repay the margin loan. 
E) will increase both your margin loan and the rate of interest on that loan.

Question 9

Recently, you sold 600 shares of stock for $17.60 a share. The sale was a short sale with an initial margin requirement of 70%. The maintenance margin is 35%. The stock is currently trading at $18.80 a share. What is your current short position in this stock?

Accepted Answer

A) $5,916 
B) $6,840 
C) $8,900 
D) $10,532 
E) $11,280 
A) $5,916 
B) $6,840 
C) $8,900 
D) $10,532 
E) $11,280

Question 10

Lauren Mitchell has a margin account with a local brokerage firm, RL Brokers. She recently purchased 200 shares of Abbot Industries common stock that trades on the New York Stock Exchange (NYSE). These shares are held in street name and are registered under the name of:

Accepted Answer

A) Lauren Mitchell. 
B) RL Brokers. 
C) Abbot Industries. 
D) the New York Stock Exchange. 
E) the Securities and Exchange Commission. 
A) Lauren Mitchell. 
B) RL Brokers. 
C) Abbot Industries. 
D) the New York Stock Exchange. 
E) the Securities and Exchange Commission.

Question 11

Which one of the following describes a short position?

Accepted Answer

A) Purchasing a security on margin 
B) Selling a security that you originally purchased on margin 
C) Loaning a security to your broker to cover a margin call 
D) Having less equity than required in your margin account 
E) Selling a security that you do not own 
A) Purchasing a security on margin 
B) Selling a security that you originally purchased on margin 
C) Loaning a security to your broker to cover a margin call 
D) Having less equity than required in your margin account 
E) Selling a security that you do not own

Question 12

Ann just purchased $8,000 of stock. She paid $7,000 in cash and borrowed the remaining $1,000 needed to pay for this purchase. If you constructed a balance sheet reflecting this transaction, the total assets would be:

Accepted Answer

A) $1,000. 
B) $6,000. 
C) $7,000. 
D) $8,000. 
E) $16,000. 
A) $1,000. 
B) $6,000. 
C) $7,000. 
D) $8,000. 
E) $16,000.

Question 13

Anita wants to buy $10,000 of securities in her margin account. Her advisor has informed her that she must pay a minimum of $7,000 in cash and maintain a minimum equity position of 30%. The initial margin requirement is ________% and the maintenance margin is ________%.

Accepted Answer

A) 30; 30 
B) 30; 70 
C) 70; 30 
D) 70; 50 
E) 70; 70 
A) 30; 30 
B) 30; 70 
C) 70; 30 
D) 70; 50 
E) 70; 70

Question 14

Jennifer believes that Northern Wine stock is going to decline in value so she is short selling 1,000 shares at $22 a share. Her initial margin requirement is 70% and the maintenance margin is 30%. What is the highest the stock price can go before she receives a margin call?

Accepted Answer

A) $28.77 
B) $29.15 
C) $30.85 
D) $31.75 
E) $32.77 
A) $28.77 
B) $29.15 
C) $30.85 
D) $31.75 
E) $32.77

Question 15

You recently purchased 700 shares of Southern Timber stock for $25 a share. Your broker required a cash payment of $11,375, plus trading costs, for this purchase. What was the initial margin requirement?

Accepted Answer

A) 60% 
B) 65% 
C) 70% 
D) 75% 
E) 80% 
A) 60% 
B) 65% 
C) 70% 
D) 75% 
E) 80%

Question 16

Brooke has decided to invest 55% of her money in large company stocks, 40% in small company stocks, and 5% in cash. This is a(n)________ decision.

Accepted Answer

A) market timing 
B) security selection 
C) tax-advantaged 
D) active strategy 
E) asset allocation 
A) market timing 
B) security selection 
C) tax-advantaged 
D) active strategy 
E) asset allocation

Question 17

Sun Lee purchased 1,500 shares of Franklin Metals stock for $16.80 a share. The stock was purchased with an initial margin of 65%. The maintenance margin is 30%. The stock is currently selling for $17.10 a share. What is the minimum dollar amount of equity that he must have in this stock today to avoid a margin call?

Accepted Answer

A) $7,544 
B) $7,695 
C) $7,760 
D) $7,808 
E) $7,973 
A) $7,544 
B) $7,695 
C) $7,760 
D) $7,808 
E) $7,973

Question 18

An investor with a long position in a security will make money:

Accepted Answer

A) if the price of the security increases. 
B) if the price of the security declines. 
C) if the price of the security remains stable. 
D) only if the security has been purchased on margin. 
E) only by shorting the security. 
A) if the price of the security increases. 
B) if the price of the security declines. 
C) if the price of the security remains stable. 
D) only if the security has been purchased on margin. 
E) only by shorting the security.

Question 19

The maximum loss you can incur on a short sale is:

Accepted Answer

A) limited to your initial equity. 
B) limited to your initial margin. 
C) limited to the margin loan plus interest. 
D) zero. 
E) unlimited. 
A) limited to your initial equity. 
B) limited to your initial margin. 
C) limited to the margin loan plus interest. 
D) zero. 
E) unlimited.

Question 20

Allan purchased 500 shares of stock on margin for $31.75 a share and sold the shares five months later for $34.50 a share. The initial margin requirement was 65% 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) 11.46% 
A) 7.05% 
B) 8.45% 
C) 9.88% 
D) 10.76% 
E) 11.46%

Jack is researching chemical companies to determine which company's stock he should purchase. This process is known as:

Staci just used $6,000 of cash plus a $3,500 margin loan to purchase $9,500 worth of stock. This is the only transaction in her brokerage account. According to her account balance sheet, she now has account equity of:

Which one of the following best describes the term "initial margin"?

Which one of the following is generally true concerning securities held in street name?

You just sold 1,200 shares of stock short at a price per share of $13.50. The initial margin requirement is 60% and the maintenance margin is 30%. What is your initial equity position?

Donna recently purchased 600 shares of Deltona stock for $37 a share. Her broker required a cash payment of $16,650, plus trading costs, for the purchase. What is the initial margin requirement on this stock?

Rosita purchased 500 shares of a stock for $25 a share. Today, the stock is selling for $30 a share. The initial margin requirement is 65% and the maintenance margin is 30%. Rosita had to pay in cash to purchase the stock and must have at least in equity today.

If you ignore a margin call, your broker:

Recently, you sold 600 shares of stock for $17.60 a share. The sale was a short sale with an initial margin requirement of 70%. The maintenance margin is 35%. The stock is currently trading at $18.80 a share. What is your current short position in this stock?

Lauren Mitchell has a margin account with a local brokerage firm, RL Brokers. She recently purchased 200 shares of Abbot Industries common stock that trades on the New York Stock Exchange (NYSE). These shares are held in street name and are registered under the name of:

Which one of the following describes a short position?

Ann just purchased $8,000 of stock. She paid $7,000 in cash and borrowed the remaining $1,000 needed to pay for this purchase. If you constructed a balance sheet reflecting this transaction, the total assets would be:

Anita wants to buy $10,000 of securities in her margin account. Her advisor has informed her that she must pay a minimum of $7,000 in cash and maintain a minimum equity position of 30%. The initial margin requirement is % and the maintenance margin is %.

Jennifer believes that Northern Wine stock is going to decline in value so she is short selling 1,000 shares at $22 a share. Her initial margin requirement is 70% and the maintenance margin is 30%. What is the highest the stock price can go before she receives a margin call?

You recently purchased 700 shares of Southern Timber stock for $25 a share. Your broker required a cash payment of $11,375, plus trading costs, for this purchase. What was the initial margin requirement?

Brooke has decided to invest 55% of her money in large company stocks, 40% in small company stocks, and 5% in cash. This is a(n)________ decision.

An investor with a long position in a security will make money:

The maximum loss you can incur on a short sale is:

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

Jack is researching chemical companies to determine which company's stock he should purchase. This process is known as:

Staci just used $6,000 of cash plus a $3,500 margin loan to purchase $9,500 worth of stock. This is the only transaction in her brokerage account. According to her account balance sheet, she now has account equity of:

Which one of the following best describes the term "initial margin"?

Which one of the following is generally true concerning securities held in street name?

You just sold 1,200 shares of stock short at a price per share of $13.50. The initial margin requirement is 60% and the maintenance margin is 30%. What is your initial equity position?

Donna recently purchased 600 shares of Deltona stock for $37 a share. Her broker required a cash payment of $16,650, plus trading costs, for the purchase. What is the initial margin requirement on this stock?

Rosita purchased 500 shares of a stock for $25 a share. Today, the stock is selling for $30 a share. The initial margin requirement is 65% and the maintenance margin is 30%. Rosita had to pay ________ in cash to purchase the stock and must have at least ________ in equity today.

If you ignore a margin call, your broker:

Recently, you sold 600 shares of stock for $17.60 a share. The sale was a short sale with an initial margin requirement of 70%. The maintenance margin is 35%. The stock is currently trading at $18.80 a share. What is your current short position in this stock?

Lauren Mitchell has a margin account with a local brokerage firm, RL Brokers. She recently purchased 200 shares of Abbot Industries common stock that trades on the New York Stock Exchange (NYSE). These shares are held in street name and are registered under the name of:

Which one of the following describes a short position?

Ann just purchased $8,000 of stock. She paid $7,000 in cash and borrowed the remaining $1,000 needed to pay for this purchase. If you constructed a balance sheet reflecting this transaction, the total assets would be:

Anita wants to buy $10,000 of securities in her margin account. Her advisor has informed her that she must pay a minimum of $7,000 in cash and maintain a minimum equity position of 30%. The initial margin requirement is ________% and the maintenance margin is ________%.

Jennifer believes that Northern Wine stock is going to decline in value so she is short selling 1,000 shares at $22 a share. Her initial margin requirement is 70% and the maintenance margin is 30%. What is the highest the stock price can go before she receives a margin call?

You recently purchased 700 shares of Southern Timber stock for $25 a share. Your broker required a cash payment of $11,375, plus trading costs, for this purchase. What was the initial margin requirement?

Brooke has decided to invest 55% of her money in large company stocks, 40% in small company stocks, and 5% in cash. This is a(n)________ decision.

An investor with a long position in a security will make money:

The maximum loss you can incur on a short sale is:

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

Rosita purchased 500 shares of a stock for $25 a share. Today, the stock is selling for $30 a share. The initial margin requirement is 65% and the maintenance margin is 30%. Rosita had to pay in cash to purchase the stock and must have at least in equity today.

Anita wants to buy $10,000 of securities in her margin account. Her advisor has informed her that she must pay a minimum of $7,000 in cash and maintain a minimum equity position of 30%. The initial margin requirement is % and the maintenance margin is %.