Question 1

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 2

Staci just used $6,000 of cash plus a $3,000 margin loan to purchase $9,000 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) $3,000. 
B) $6,000. 
C) $9,000. 
D) $12,000. 
E) $15,000. 
A) $3,000. 
B) $6,000. 
C) $9,000. 
D) $12,000. 
E) $15,000.

Question 3

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:

Accepted Answer

A) your broker. 
B) the stock exchange. 
C) the SEC. 
D) the SIPC. 
E) the Federal Reserve. 
A) your broker. 
B) the stock exchange. 
C) the SEC. 
D) the SIPC. 
E) the Federal Reserve.

Question 4

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 5

A stock was purchased for $51 a share and sold eleven months later for $54 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.

Accepted Answer

A) 5.56; 3.89 
B) 5.56; 7.94 
C) 5.88; 4.12 
D) 5.88; 6.69 
E) 5.88; 8.40 
A) 5.56; 3.89 
B) 5.56; 7.94 
C) 5.88; 4.12 
D) 5.88; 6.69 
E) 5.88; 8.40

Question 6

Last week,you sold 400 shares of Hi-Lo stock for $12,400.The sale was a short sale with an initial margin requirement of 70 percent.The maintenance margin is 40 percent.Some positive news concerning the company was released last night and the stock price jumped this morning to $38 a share.What is your current margin position in this stock?

Accepted Answer

A) 61.33 percent 
B) 56.67 percent 
C) 48.33 percent 
D) 38.68 percent 
E) 25.83 percent 
A) 61.33 percent 
B) 56.67 percent 
C) 48.33 percent 
D) 38.68 percent 
E) 25.83 percent

Question 7

Nelson purchased 1,600 shares of stock for $18.75 a share.The initial margin requirement is 70 percent and the maintenance margin is 40 percent.What is the maximum percent by which the stock price can decline before he receives a margin call?

Accepted Answer

A) 30 percent 
B) 45 percent 
C) 50 percent 
D) 65 percent 
E) 70 percent 
A) 30 percent 
B) 45 percent 
C) 50 percent 
D) 65 percent 
E) 70 percent

Question 8

Seven months ago,Freda purchased 400 shares of stock on margin at a price per share of $36.The initial margin requirement on her account is 70 percent and the maintenance margin is 40 percent.The call money rate is 4.4 percent and she pays 2 percent above that rate.Today,she sold these shares for $37.50 each.What is her annualized rate of return?

Accepted Answer

A) 7.50 percent 
B) 7.61 percent 
C) 14.37 percent 
D) 16.90 percent 
E) 17.42 percent 
A) 7.50 percent 
B) 7.61 percent 
C) 14.37 percent 
D) 16.90 percent 
E) 17.42 percent

Question 9

Which one of the following statements is correct?

Accepted Answer

A) Most brokerage agreements require disputes be settled in a court of law. 
B) Arbitration is a formal legal process for settling disputes related to brokerage accounts. 
C) Churning is the preferred method of providing deep-discount brokerage services. 
D) Discount brokers only provide order execution services. 
E) Full service brokers frequently provide financial planning services to clients. 
A) Most brokerage agreements require disputes be settled in a court of law. 
B) Arbitration is a formal legal process for settling disputes related to brokerage accounts. 
C) Churning is the preferred method of providing deep-discount brokerage services. 
D) Discount brokers only provide order execution services. 
E) Full service brokers frequently provide financial planning services to clients.

Question 10

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 11

You own 700 shares of a stock that you purchased on margin at a price per share of $20.12.The stock is currently valued at $23 a share.Your broker advised you today that your minimum equity position for this purchase is $5,635 as of today.What is the maintenance margin percentage?

Accepted Answer

A) 25 percent 
B) 30 percent 
C) 35 percent 
D) 40 percent 
E) 50 percent 
A) 25 percent 
B) 30 percent 
C) 35 percent 
D) 40 percent 
E) 50 percent

Question 12

Rudolfo purchased 900 shares of stock for $62.20 a share and sold them ten months later for $64.60 a share.The initial margin requirement on this stock is 75 percent and the maintenance margin is 40 percent.Ignoring dividends and costs,what is his holding period return?

Accepted Answer

A) 3.72 percent 
B) 3.86 percent 
C) 4.54 percent 
D) 4.95 percent 
E) 5.14 percent 
A) 3.72 percent 
B) 3.86 percent 
C) 4.54 percent 
D) 4.95 percent 
E) 5.14 percent

Question 13

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

Accepted Answer

A) margin. 
B) shares. 
C) proceeds. 
D) sale. 
E) interest. 
A) margin. 
B) shares. 
C) proceeds. 
D) sale. 
E) interest.

Question 14

The SIPC:

Accepted Answer

A) guarantees investors against any loss related to an investment account held at a brokerage firm. 
B) guarantees cash balances held in brokerage accounts up to $500,000. 
C) is an agency of the federal government. 
D) protects private brokerage firms from bankruptcy. 
E) protects investors from missing assets when a brokerage firm closes. 
A) guarantees investors against any loss related to an investment account held at a brokerage firm. 
B) guarantees cash balances held in brokerage accounts up to $500,000. 
C) is an agency of the federal government. 
D) protects private brokerage firms from bankruptcy. 
E) protects investors from missing assets when a brokerage firm closes.

Question 15

An investor who follows a fully active strategy will:

Accepted Answer

A) move money between asset classes as well as try to select the best performers in each class. 
B) move money between asset classes but will not be concerned about which individual securities are owned. 
C) focus on picking individual stocks only. 
D) maintain a relatively constant mix of asset classes while continually buying and selling individual securities. 
E) concentrate solely on asset allocation to maximize potential returns. 
A) move money between asset classes as well as try to select the best performers in each class. 
B) move money between asset classes but will not be concerned about which individual securities are owned. 
C) focus on picking individual stocks only. 
D) maintain a relatively constant mix of asset classes while continually buying and selling individual securities. 
E) concentrate solely on asset allocation to maximize potential returns.

Question 16

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 17

This morning,you shorted 100 shares of Better Foods stock at a price per share of $46.What is the maximum potential profit and maximum potential loss on this position?
 Explain how you compute these values.Ignore trading costs,taxes,and dividends.

Accepted Answer

A short sale involves the borrowing of s

Question 18

Rosita purchased 300 shares of a stock for $37 a share.Today,the stock is selling for $41 a share. The initial margin requirement is 70 percent and the maintenance margin is 30 percent.Rosita had to pay _____ in cash to purchase the stock and must have at least _____ in equity today.

Accepted Answer

A) $3,690; $3,330 
B) $3,690; $3,690 
C) $7,770; $3,330 
D) $7,770; $3,690 
E) $8,610; $3,690 
A) $3,690; $3,330 
B) $3,690; $3,690 
C) $7,770; $3,330 
D) $7,770; $3,690 
E) $8,610; $3,690

Question 19

Taylor Industries stock is selling for $26 a share.You would like to purchase as many shares of this stock as you can.Your margin account currently has available cash of $4,700 and the initial margin requirement is 60 percent.What is the maximum number of shares you can buy?

Accepted Answer

A) 193 shares 
B) 287 shares 
C) 301 shares 
D) 360 shares 
E) 408 shares 
A) 193 shares 
B) 287 shares 
C) 301 shares 
D) 360 shares 
E) 408 shares

Question 20

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

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.

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

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:

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?

A stock was purchased for $51 a share and sold eleven months later for $54 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.

Nelson purchased 1,600 shares of stock for $18.75 a share.The initial margin requirement is 70 percent and the maintenance margin is 40 percent.What is the maximum percent by which the stock price can decline before he receives a margin call?

Which one of the following statements is correct?

You own 700 shares of a stock that you purchased on margin at a price per share of $20.12.The stock is currently valued at $23 a share.Your broker advised you today that your minimum equity position for this purchase is $5,635 as of today.What is the maintenance margin percentage?

Rudolfo purchased 900 shares of stock for $62.20 a share and sold them ten months later for $64.60 a share.The initial margin requirement on this stock is 75 percent and the maintenance margin is 40 percent.Ignoring dividends and costs,what is his holding period return?

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

The SIPC:

An investor who follows a fully active strategy will:

This morning,you shorted 100 shares of Better Foods stock at a price per share of $46.What is the maximum potential profit and maximum potential loss on this position? Explain how you compute these values.Ignore trading costs,taxes,and dividends.

Rosita purchased 300 shares of a stock for $37 a share.Today,the stock is selling for $41 a share. The initial margin requirement is 70 percent and the maintenance margin is 30 percent.Rosita had to pay _ in cash to purchase the stock and must have at least _ in equity today.

Taylor Industries stock is selling for $26 a share.You would like to purchase as many shares of this stock as you can.Your margin account currently has available cash of $4,700 and the initial margin requirement is 60 percent.What is the maximum number of shares you can buy?

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.

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

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.

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

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:

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?

A stock was purchased for $51 a share and sold eleven months later for $54 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.

Nelson purchased 1,600 shares of stock for $18.75 a share.The initial margin requirement is 70 percent and the maintenance margin is 40 percent.What is the maximum percent by which the stock price can decline before he receives a margin call?

Which one of the following statements is correct?

You own 700 shares of a stock that you purchased on margin at a price per share of $20.12.The stock is currently valued at $23 a share.Your broker advised you today that your minimum equity position for this purchase is $5,635 as of today.What is the maintenance margin percentage?

Rudolfo purchased 900 shares of stock for $62.20 a share and sold them ten months later for $64.60 a share.The initial margin requirement on this stock is 75 percent and the maintenance margin is 40 percent.Ignoring dividends and costs,what is his holding period return?

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

The SIPC:

An investor who follows a fully active strategy will:

This morning,you shorted 100 shares of Better Foods stock at a price per share of $46.What is the maximum potential profit and maximum potential loss on this position? Explain how you compute these values.Ignore trading costs,taxes,and dividends.

Rosita purchased 300 shares of a stock for $37 a share.Today,the stock is selling for $41 a share. The initial margin requirement is 70 percent and the maintenance margin is 30 percent.Rosita had to pay _____ in cash to purchase the stock and must have at least _____ in equity today.

Taylor Industries stock is selling for $26 a share.You would like to purchase as many shares of this stock as you can.Your margin account currently has available cash of $4,700 and the initial margin requirement is 60 percent.What is the maximum number of shares you can buy?

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.

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

A stock was purchased for $51 a share and sold eleven months later for $54 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.

Rosita purchased 300 shares of a stock for $37 a share.Today,the stock is selling for $41 a share. The initial margin requirement is 70 percent and the maintenance margin is 30 percent.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 percent.The initial margin requirement is _ percent and the maintenance margin is _ percent.