Question 1

A discretionary account:

Accepted Answer

A)  authorizes a broker to trade securities on your behalf. 
B)  charges an annual fee to cover all trading and management services. 
C)  is the term applied to brokerage accounts with check-writing and credit card services. 
D)  is the same as a wrap account. 
E)  is the account used to pledge securities as collateral for a margin loan. 
A)  authorizes a broker to trade securities on your behalf. 
B)  charges an annual fee to cover all trading and management services. 
C)  is the term applied to brokerage accounts with check-writing and credit card services. 
D)  is the same as a wrap account. 
E)  is the account used to pledge securities as collateral for a margin loan.

Question 2

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 3

Three months ago,Trevor purchased 500 shares of stock at a cost per share of $64.20.The purchase was made on margin with an initial margin requirement of 65 percent.Trevor pays 1.6 percent over the call money rate of 4.8 percent.What will his total dollar return be on this investment if he sells his shares today at a price per share of $63.40? Ignore dividends.

Accepted Answer

A)  -$548.60 
B)  -$539.67 
C)  -$534.95 
D)  -$575.60 
E)  -$591.19 
A)  -$548.60 
B)  -$539.67 
C)  -$534.95 
D)  -$575.60 
E)  -$591.19

Question 4

Brooke has decided to invest 55 percent of her money in large company stocks,40 percent in small company stocks,and 5 percent 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 5

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

Suzette recently purchased 300 shares of Nu Electronics stock for $4.40 a share.Her broker required a cash payment of $1,320,plus trading costs,for the purchase.What is the initial margin requirement on this stock?

Accepted Answer

A)  70 percent 
B)  75 percent 
C)  80 percent 
D)  90 percent 
E)  100 percent 
A)  70 percent 
B)  75 percent 
C)  80 percent 
D)  90 percent 
E)  100 percent

Question 7

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 percent.The maintenance margin is 30 percent.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 8

Rylee short sold 600 shares of stock at $16.25 a share.The initial margin is 75 percent and the maintenance margin is 50 percent.The stock is currently selling for $19.50 a share.What is Rylee's account equity at this time? Ignore margin interest.

Accepted Answer

A)  $1,070.75 
B)  $3,590.25 
C)  $5,362.50 
D)  $8,950.00 
E)  $10,510.35 
A)  $1,070.75 
B)  $3,590.25 
C)  $5,362.50 
D)  $8,950.00 
E)  $10,510.35

Question 9

You purchased 500 shares of stock for $28.50 a share.The initial margin requirement is 65 percent and the maintenance margin is 35 percent.What is the maximum percentage decrease that can occur in the stock price before you receive a margin call?

Accepted Answer

A)  35 percent 
B)  38 percent 
C)  46 percent 
D)  57 percent 
E)  62 percent 
A)  35 percent 
B)  38 percent 
C)  46 percent 
D)  57 percent 
E)  62 percent

Question 10

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 percent.The initial margin requirement is ________ percent and the maintenance margin is ________ percent.

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 11

Asset allocation is the:

Accepted Answer

A)  selection of specific securities within a particular class or industry. 
B)  division of a purchase price between a cash payment and a margin loan. 
C)  division of a portfolio into short and long positions. 
D)  distribution of investment funds among various broad asset classes. 
E)  dividing of assets into those that are hypothecated and those that are not. 
A)  selection of specific securities within a particular class or industry. 
B)  division of a purchase price between a cash payment and a margin loan. 
C)  division of a portfolio into short and long positions. 
D)  distribution of investment funds among various broad asset classes. 
E)  dividing of assets into those that are hypothecated and those that are not.

Question 12

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 percent and the maintenance margin is 30 percent.Robin pays 1.2 percent over the call money rate of 4.9 percent.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 13

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 14

Donna recently purchased 500 shares of Deltona stock for $33.00 a share.Her broker required a cash payment of $10,725,plus trading costs,for the purchase.What is the initial margin requirement on this particular stock?

Accepted Answer

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

Question 15

The short interest on Blue Water Cruisers stock was 351,900 when the market opened this morning.During the day,288,500 shares were covered and 151,600 shares were sold short.What was the short interest on this stock at the end of the trading day?

Accepted Answer

A)  203,100 shares 
B)  215,000 shares 
C)  233,100 shares 
D)  308,100 shares 
E)  447,900 shares 
A)  203,100 shares 
B)  215,000 shares 
C)  233,100 shares 
D)  308,100 shares 
E)  447,900 shares

Question 16

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 17

Today,you are purchasing 100 shares of stock on margin.The purchase price per share is $35.The initial margin requirement is 70 percent and the maintenance margin is 30 percent.The call money rate is 4.5 percent and you are charged 1.6 percent over that rate.What will your rate of return be if you sell your shares one year from now for $37 a share? Ignore dividends.

Accepted Answer

A)  5.55 percent 
B)  6.42 percent 
C)  7.18 percent 
D)  7.49 percent 
E)  8.03 percent 
A)  5.55 percent 
B)  6.42 percent 
C)  7.18 percent 
D)  7.49 percent 
E)  8.03 percent

Question 18

On August 8 of this year,Brent sold 500 shares of ADO stock for $24 a share.On September 6 of this year,he purchased 500 shares of ADO stock to cover his position.The transaction on August 8:

Accepted Answer

A)  was a short sale. 
B)  was a margin trade. 
C)  was a wrap transaction. 
D)  created a long transaction. 
E)  was a pooling transaction. 
A)  was a short sale. 
B)  was a margin trade. 
C)  was a wrap transaction. 
D)  created a long transaction. 
E)  was a pooling transaction.

Question 19

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 20

Recently,you sold 500 shares of stock for $16.60 a share.The sale was a short sale with an initial margin requirement of 70 percent.The maintenance margin is 35 percent.The stock is currently trading at $17.80 a share.What is your current short position in this stock?

Accepted Answer

A)  $4,916 
B)  $6,830 
C)  $8,900 
D)  $10,362 
E)  $11,976 
A)  $4,916 
B)  $6,830 
C)  $8,900 
D)  $10,362 
E)  $11,976

A discretionary account:

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

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

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

Suzette recently purchased 300 shares of Nu Electronics stock for $4.40 a share.Her broker required a cash payment of $1,320,plus trading costs,for the purchase.What is the initial margin requirement on this stock?

Rylee short sold 600 shares of stock at $16.25 a share.The initial margin is 75 percent and the maintenance margin is 50 percent.The stock is currently selling for $19.50 a share.What is Rylee's account equity at this time? Ignore margin interest.

You purchased 500 shares of stock for $28.50 a share.The initial margin requirement is 65 percent and the maintenance margin is 35 percent.What is the maximum percentage decrease that can occur in the stock price before you receive a margin call?

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 percent.The initial margin requirement is percent and the maintenance margin is percent.

Asset allocation is the:

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

Donna recently purchased 500 shares of Deltona stock for $33.00 a share.Her broker required a cash payment of $10,725,plus trading costs,for the purchase.What is the initial margin requirement on this particular stock?

The short interest on Blue Water Cruisers stock was 351,900 when the market opened this morning.During the day,288,500 shares were covered and 151,600 shares were sold short.What was the short interest on this stock at the end of the trading day?

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:

On August 8 of this year,Brent sold 500 shares of ADO stock for $24 a share.On September 6 of this year,he purchased 500 shares of ADO stock to cover his position.The transaction on August 8:

The absolute minimum initial margin requirement is set by the:

Recently,you sold 500 shares of stock for $16.60 a share.The sale was a short sale with an initial margin requirement of 70 percent.The maintenance margin is 35 percent.The stock is currently trading at $17.80 a share.What is your current short position in this stock?

A Brief History of Risk and Return

Overview of Security Types

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

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 2: The Investment Process

A discretionary account:

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

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

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

Suzette recently purchased 300 shares of Nu Electronics stock for $4.40 a share.Her broker required a cash payment of $1,320,plus trading costs,for the purchase.What is the initial margin requirement on this stock?

Rylee short sold 600 shares of stock at $16.25 a share.The initial margin is 75 percent and the maintenance margin is 50 percent.The stock is currently selling for $19.50 a share.What is Rylee's account equity at this time? Ignore margin interest.

You purchased 500 shares of stock for $28.50 a share.The initial margin requirement is 65 percent and the maintenance margin is 35 percent.What is the maximum percentage decrease that can occur in the stock price before you receive a margin call?

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 percent.The initial margin requirement is ________ percent and the maintenance margin is ________ percent.

Asset allocation is the:

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

Donna recently purchased 500 shares of Deltona stock for $33.00 a share.Her broker required a cash payment of $10,725,plus trading costs,for the purchase.What is the initial margin requirement on this particular stock?

The short interest on Blue Water Cruisers stock was 351,900 when the market opened this morning.During the day,288,500 shares were covered and 151,600 shares were sold short.What was the short interest on this stock at the end of the trading day?

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:

On August 8 of this year,Brent sold 500 shares of ADO stock for $24 a share.On September 6 of this year,he purchased 500 shares of ADO stock to cover his position.The transaction on August 8:

The absolute minimum initial margin requirement is set by the:

Recently,you sold 500 shares of stock for $16.60 a share.The sale was a short sale with an initial margin requirement of 70 percent.The maintenance margin is 35 percent.The stock is currently trading at $17.80 a share.What is your current short position in this stock?

A Brief History of Risk and Return

Overview of Security Types

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

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

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 percent.The initial margin requirement is percent and the maintenance margin is percent.