Exam 17: Markets for Common Stock: The Basic Characteristics

Stock market indicators ________.

Which of the below statements is TRUE?

Which of the below statements is FALSE?

An investor preferentially routes their order to the broker/dealer specified in the soft dollar relationship and does not have to pay real money, for the research or other services. This practice is called paying "________" (i.e., directing their order flow) for the ancillary research.

Active investment strategies, consisting of efforts to time purchases and select stocks, are pursued by investors who believe that securities are mispriced enough that it is possible to capitalize on strategies that are designed to exploit the perceived inefficiency.

Which of the below statements is FALSE?

The optimal strategy to pursue when the stock market is perceived to be price inefficient is indexing because it allows the investor to capture the efficiency of the market.

Short selling involves the sale of a security not owned by the investor at the time of sale. Investors can arrange to have their broker borrow the stock from someone else, and the borrowed stock is delivered to implement the sale. To cover their short position, investors must subsequently purchase the stock and return it to the party that lent the stock. Give an example of how this short selling is done.

Implicit trading costs include ________.

A transaction in which an investor borrows to buy shares using the shares themselves as collateral is called ________.

The Consolidated Tape Association (CTA) ________.

When an investor is calculating the return from holding common stock from the date of purchase to a given point in time and has sold the common stock, the return reflects an unrealized capital gain or unrealized capital loss.

________ are orders requiring the execution of trades in a large number of different stocks at as near the same time as possible.

The Wilshire 4500 includes all stocks in the Wilshire 5000 except for those in the Dow Jones 500.

The Internal Revenue Code defines short-term as a holding period of one year or less. If a capital gain is classified as a short-term capital gain, it is taxed as ordinary income at the investor's regular income tax rate.

Name and describe the three different forms of pricing efficiency.

What do equity securities represent? Describe the two types of equity securities distinguishing between them.

There are two major components of transaction costs: explicit costs and implicit costs.

Stock market indicators can be classified into three groups. Describe these two of these three groups.

Assume an investor buys 100 shares of a stock at $80 per share for $8,000 of stock on 50% margin and the maintenance margin is 30%. By purchasing $8,000 of a stock on 50% margin, the investor must put up $4,000 of cash (or other equity) and, thus, borrows $4,000 (referred to as the "debit balance").