Exam 2: The Investment Process

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

You open a margin account with a local broker and purchase shares of stock.The house maintenance margin requirement for your account is set by:

What is the purpose of a margin call?

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

A stock was purchased for $45 a share and sold ten months later for $48 a share.If the shares were purchased totally with cash the holding period return would be ________ percent as compared to ________ percent if the purchase was made using 70 percent margin.Ignore trading costs and margin interest.

When your equity position in a security is less than the required amount,your brokerage firm will issue a:

Staci just used $5,000 of cash plus a $2,500 margin loan to purchase $7,500 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 decisions falls under the category of asset allocation?

The minimum equity that must be maintained at all times in a margin account is called the:

You own 500 shares of a stock that you purchased on margin at a price per share of $20.12.The stock is currently valued at $24 a share.Your broker advised you today that your minimum equity position for this purchase is $4,800 as of today.What is the maintenance margin percentage?

Tom recently inherited a large sum of money that he wants to invest in the stock market.Since he has no investment experience,he has decided that he would like to work with a professional who can explain the market to him and also manage his funds for him.Ted most likely needs the services offered by a(n):

Walter is trying to decide whether he wants to purchase shares in General Motors,Ford,or Honda,all of which are auto manufacturers.Walter is making a(n)_______ decision.

Theresa has a margin account with a 60 percent initial margin requirement and a 35 percent maintenance margin.What is the maximum dollar amount of stock she can purchase if her cash balance in the account is $35,300?

What is the maximum loss you can incur if you have a long position on a stock in a cash account?

Aaron purchased 300 shares of a technology stock for $16.80 a share.The initial margin requirement on this stock is 85 percent and the maintenance margin is 60 percent.What is the lowest the stock price can go before he receives a margin call?

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

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

The amount of common stock held in short positions is referred to as the short:

Mark short sold 500 shares of stock at $12.50 a share.The initial margin is 80 percent and the maintenance margin is 50 percent.The stock is currently selling for $9.80 a share.What is Matt's account equity at this time? Ignore margin interest.

Stacy purchased 400 shares of stock for $38 a share.She sold those shares six months later for $34 a share.The initial margin requirement is 80 percent and the maintenance margin is 40 percent.Ignore margin interest and trading costs.If she purchased the shares for cash her holding period return would be ________ percent as compared to ________ percent if she had used margin.