Question 1

In a pure auction market buyers and sellers submit bid-and-ask prices for a given stock to a central location.

Accepted Answer

A) True 
 B)False  True

Question 2

A continuous market that has price continuity requires depth of buyers and sellers.

Accepted Answer

A) True 
 B)False  True

Question 3

A block trade is one which involves a minimum of

Accepted Answer

A)  1,000 shares. 
B)  5,000 shares. 
C)  10,000 shares. 
D)  100,000 shares. 
E)  1,000,000 shares. 
A)  1,000 shares. 
B)  5,000 shares. 
C)  10,000 shares. 
D)  100,000 shares. 
E)  1,000,000 shares. C

Question 4

You purchased 75 shares of Basket Company for $42 a share.One share of the stock is currently trading between $52 and $53 and you placed a stop loss order at $47.If the stock price drops to $40 a share,what is your return on this investment?

Accepted Answer

A)  8.7% 
B)  9.2% 
C)  10.3% 
D)  11.9% 
E)  12.8% 
A)  8.7% 
B)  9.2% 
C)  10.3% 
D)  11.9% 
E)  12.8%

Question 5

Secondary markets are important because

Accepted Answer

A)  The prevailing market price of securities is determined in the secondary market 
B)  It has an impact on price stability 
C)  It has an impact on price continuity 
D)  All of the above 
E)  None of the above 
A)  The prevailing market price of securities is determined in the secondary market 
B)  It has an impact on price stability 
C)  It has an impact on price continuity 
D)  All of the above 
E)  None of the above

Question 6

In recent years there has been a trend toward the consolidation of existing exchanges in developed markets,such as London,Frankfurt and Paris.

Accepted Answer

A) True 
 B)False

Question 7

Exhibit 4.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%.
-Refer to Exhibit 4.7.At the end of one year shares of RossCorp stock are selling for $35 per share and the company paid dividends of $0.85 per share.Assuming that you borrowed 25% of cost of the purchase,what is your rate of return?

Accepted Answer

A)  33.05% 
B)  -33.05% 
C)  -23.51% 
D)  -25.35% 
E)  -40.64% 
A)  33.05% 
B)  -33.05% 
C)  -23.51% 
D)  -25.35% 
E)  -40.64%

Question 8

When a market is externally efficient,it means that

Accepted Answer

A)  Timely and accurate information is available 
B)  The market is liquid 
C)  Transaction costs are low 
D)  Prices adjust rapidly to new information 
E)  The number of buyers and sellers are the same 
A)  Timely and accurate information is available 
B)  The market is liquid 
C)  Transaction costs are low 
D)  Prices adjust rapidly to new information 
E)  The number of buyers and sellers are the same

Question 9

All of the following are characteristics of a dealer market except:

Accepted Answer

A)  Also referred to as a quote-driven market 
B)  NASDAQ market is a dealer market 
C)  Individual dealers buy and sell shares for themselves 
D)  Centralized trading location 
E)  All of the above are characteristics of a dealer market 
A)  Also referred to as a quote-driven market 
B)  NASDAQ market is a dealer market 
C)  Individual dealers buy and sell shares for themselves 
D)  Centralized trading location 
E)  All of the above are characteristics of a dealer market

Question 10

All of the following are advantages of secondary markets except

Accepted Answer

A)  Provide liquidity to individuals holding the securities. 
B)  Support the primary market by reducing the required rate of return due to the lower liquidity risk for securities. 
C)  Provide price discovery for corporations selling seasoned securities. 
D)  Impact market efficiency and price volatility. 
E)  All of the above are advantages of secondary markets. 
A)  Provide liquidity to individuals holding the securities. 
B)  Support the primary market by reducing the required rate of return due to the lower liquidity risk for securities. 
C)  Provide price discovery for corporations selling seasoned securities. 
D)  Impact market efficiency and price volatility. 
E)  All of the above are advantages of secondary markets.

Question 11

You own 50 shares of Auto Corporation that you purchased for $30 a share.The stock is currently selling for $50 a share and you placed a stop loss order at $45.If the stock price drops to $35 a share what is your return on this investment?

Accepted Answer

A)  -30.0% 
B)  16.7% 
C)  50.0% 
D)  66.7% 
E)  150.0% 
A)  -30.0% 
B)  16.7% 
C)  50.0% 
D)  66.7% 
E)  150.0%

Question 12

When an investor borrows part of the investment cost it is known as

Accepted Answer

A)  A short sale. 
B)  A fill or kill order. 
C)  A margin transaction. 
D)  A limit order. 
E)  Going long. 
A)  A short sale. 
B)  A fill or kill order. 
C)  A margin transaction. 
D)  A limit order. 
E)  Going long.

Question 13

You sell short 100 shares of Hi-Light Corporation when it is trading at $70.Your margin requirement is 50%.Assuming there was no commission and the maintenance margin is 25%,at what stock price would you receive a margin call?

Accepted Answer

A)  $76 
B)  $80 
C)  $84 
D)  $88 
E)  $92 
A)  $76 
B)  $80 
C)  $84 
D)  $88 
E)  $92

Question 14

Only the stocks of large companies are traded in the primary market.

Accepted Answer

A) True 
 B)False

Question 15

The US secondary market with the largest number of issues traded is the:

Accepted Answer

A)  AMEX 
B)  NASDAQ 
C)  NYSE 
D)  LSE 
E)  Both a and c 
A)  AMEX 
B)  NASDAQ 
C)  NYSE 
D)  LSE 
E)  Both a and c

Question 16

It is required by law that a stock market must have a physical location.

Accepted Answer

A) True 
 B)False

Question 17

Exhibit 4.7
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%.
-Refer to Exhibit 4.7.Assume that you purchase 150 shares of RossCorp stock at $45 each by making a margin deposit of 55%.At what price would you receive a margin call?

Accepted Answer

A)  $29.39 
B)  $26.48 
C)  $50.39 
D)  $28.93 
E)  $50.10 
A)  $29.39 
B)  $26.48 
C)  $50.39 
D)  $28.93 
E)  $50.10

Question 18

Exhibit 4.1
Use the Information Below for the Following Problem(S)
Jackie has a margin account with a balance of $150,000. The initial margin deposit is 60 percent and Turtle Industries is currently selling at $50 per share.
-Refer to Exhibit 4.1.What is Jackie's profit/loss if Turtle's price after one year is $40?

Accepted Answer

A)  $50,000 
B)  -$50,000 
C)  $100,000 
D)  -$100,000 
E)  None of the above 
A)  $50,000 
B)  -$50,000 
C)  $100,000 
D)  -$100,000 
E)  None of the above

Question 19

Rule 415 allows corporations to place securities privately with large,sophisticated institutional investors without extensive registration documents.

Accepted Answer

A) True 
 B)False

Question 20

Suppose you buy a round lot of Altman Industries stock on 50% margin when it is selling at $35 a share.The broker charges a 10 percent annual interest rate and commissions are 5 percent of the total stock value on both the purchase and the sale.If at year end you receive a $1.00 per share dividend and sell the stock for $42.63,what is your rate of return on the investment?

Accepted Answer

A)  15.58% 
B)  11.84% 
C)  14.74% 
D)  21.84% 
E)  28.38% 
A)  15.58% 
B)  11.84% 
C)  14.74% 
D)  21.84% 
E)  28.38%

Exam 4: Securities Markets: Organization and Operation

In a pure auction market buyers and sellers submit bid-and-ask prices for a given stock to a central location.

A continuous market that has price continuity requires depth of buyers and sellers.

A block trade is one which involves a minimum of

You purchased 75 shares of Basket Company for $42 a share.One share of the stock is currently trading between $52 and $53 and you placed a stop loss order at $47.If the stock price drops to $40 a share,what is your return on this investment?

Secondary markets are important because

In recent years there has been a trend toward the consolidation of existing exchanges in developed markets,such as London,Frankfurt and Paris.

When a market is externally efficient,it means that

All of the following are characteristics of a dealer market except:

All of the following are advantages of secondary markets except

You own 50 shares of Auto Corporation that you purchased for $30 a share.The stock is currently selling for $50 a share and you placed a stop loss order at $45.If the stock price drops to $35 a share what is your return on this investment?

When an investor borrows part of the investment cost it is known as

You sell short 100 shares of Hi-Light Corporation when it is trading at $70.Your margin requirement is 50%.Assuming there was no commission and the maintenance margin is 25%,at what stock price would you receive a margin call?

Only the stocks of large companies are traded in the primary market.

The US secondary market with the largest number of issues traded is the:

It is required by law that a stock market must have a physical location.

Rule 415 allows corporations to place securities privately with large,sophisticated institutional investors without extensive registration documents.

An Overview of the Investment Process

The Asset Allocation Decision

The Global Market Investment Decision

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Security Valuation Principles

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Equity Portfolio Management Stragtegies

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts,convertible Securities,and Other Embedded Derivatives

Professional Money Management, alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Investment Return and Risk Analysis Questions

Investment and Retirement Plans

Calculating Covariance and Correlation Coefficient of Assets

Portfolio Variance and Stock Weight Calculations

Portfolio Optimization with Negative Correlation: Finding Minimum Variance and Weight Allocation

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