Question 1

Which one of the following statements is correct?

Accepted Answer

A) The call money rate is the rate of interest brokerage firms charge on margin loans. 
B) The spread is the fee a deep-discount broker charges to execute a trade. 
C) The percentage of a purchase paid for with borrowed funds is referred to as the margin. 
D) A margin loan is treated as an asset on an account balance sheet. 
E) Margin is equal to account equity divided by the value of the securities owned. 
A) The call money rate is the rate of interest brokerage firms charge on margin loans. 
B) The spread is the fee a deep-discount broker charges to execute a trade. 
C) The percentage of a purchase paid for with borrowed funds is referred to as the margin. 
D) A margin loan is treated as an asset on an account balance sheet. 
E) Margin is equal to account equity divided by the value of the securities owned.

Question 2

Market timing is the:

Accepted Answer

A) placing of an order within the last half-hour of trading for a day. 
B) period of time between the placement of a short sale and the covering of that sale. 
C) buying and selling of securities in anticipation of the overall direction of the market. 
D) staggering of either buy or sell orders to mask the total size of a large transaction. 
E) placing of trades within the last half-hour prior to the commencement of daily trading. 
A) placing of an order within the last half-hour of trading for a day. 
B) period of time between the placement of a short sale and the covering of that sale. 
C) buying and selling of securities in anticipation of the overall direction of the market. 
D) staggering of either buy or sell orders to mask the total size of a large transaction. 
E) placing of trades within the last half-hour prior to the commencement of daily trading.

Question 3

You are having a discussion with Kate when she mentions that she just initiated a short position on ABC stock.Given that statement,what do you know about Kate's future outlook for ABC stock?

Accepted Answer

A short position provides a po

Question 4

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?

Accepted Answer

A) $19,140.00 
B) $31,900.00 
C) $44,093.33 
D) $58,833.33 
E) $91,142.86 
A) $19,140.00 
B) $31,900.00 
C) $44,093.33 
D) $58,833.33 
E) $91,142.86

Question 5

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.

Accepted Answer

A) -10.12; -12.84 
B) -10.53; -13.16 
C) -11.63; -14.30 
D) -11.63; -14.54 
E) -12.27; -15.82 
A) -10.12; -12.84 
B) -10.53; -13.16 
C) -11.63; -14.30 
D) -11.63; -14.54 
E) -12.27; -15.82

Question 6

You short sold 600 shares of a stock at $48 a share.The initial margin requirement is 60 percent and the maintenance margin is 30 percent.What is the amount of your total liability for this transaction as initially shown on your account balance sheet?

Accepted Answer

A) $8,640 
B) $17,280 
C) $22,210 
D) $28,800 
E) $37,440 
A) $8,640 
B) $17,280 
C) $22,210 
D) $28,800 
E) $37,440

Question 7

Five months ago,you purchased 400 shares of stock on margin.The initial margin requirement on your account is 60 percent and the maintenance margin is 30 percent.The call money rate is 4.8 percent and you pay 1.85 percent above that rate.The purchase price was $16 a share.Today,you sold these shares for $18.00 each.What is your annualized rate of return?

Accepted Answer

A) 26.15 percent 
B) 33.35 percent 
C) 42.77 percent 
D) 56.87 percent 
E) 64.64 percent 
A) 26.15 percent 
B) 33.35 percent 
C) 42.77 percent 
D) 56.87 percent 
E) 64.64 percent

Question 8

Briefly describe the NYSE up-tick rule,the rationale for it and the current status of the rule.

Accepted Answer

The New York Stock Exchange Uptick Rule

Question 9

A brokerage account in which purchases can be made using credit is referred to as which type of account?

Accepted Answer

A) clearing 
B) funds available 
C) cash 
D) call 
E) margin 
A) clearing 
B) funds available 
C) cash 
D) call 
E) margin

Question 10

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

Accepted Answer

A) margin call. 
B) margin certificate. 
C) cash certificate. 
D) limit order. 
E) leverage call. 
A) margin call. 
B) margin certificate. 
C) cash certificate. 
D) limit order. 
E) leverage call.

Question 11

A Roth IRA:

Accepted Answer

A) is a form of "tax-deferred" account 
B) funds are taxed at the time you begin withdrawals 
C) are well-suited to investors nearing retirement 
D) invests after-tax dollars 
E) is the type of account offered by most employers 
A) is a form of "tax-deferred" account 
B) funds are taxed at the time you begin withdrawals 
C) are well-suited to investors nearing retirement 
D) invests after-tax dollars 
E) is the type of account offered by most employers

Question 12

Kate just purchased $7,000 worth of stock.She paid $5,000 in cash and borrowed $2,000.In this example,the term margin refers to:

Accepted Answer

A) the total amount of the purchase. 
B) the percentage of the purchase that was paid in cash. 
C) the percentage of the purchase paid with borrowed funds. 
D) any future increase in the value of the stock. 
E) any future decrease in the value of the stock. 
A) the total amount of the purchase. 
B) the percentage of the purchase that was paid in cash. 
C) the percentage of the purchase paid with borrowed funds. 
D) any future increase in the value of the stock. 
E) any future decrease in the value of the stock.

Question 13

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 14

This morning,Josh sold 800 shares of stock that he did not own.This sale is referred to as a:

Accepted Answer

A) margin sale. 
B) long position. 
C) wrap trade. 
D) hypothecated sale. 
E) short sale. 
A) margin sale. 
B) long position. 
C) wrap trade. 
D) hypothecated sale. 
E) short sale.

Question 15

If you benefit when a security decreases in value,you have a _____ position in the security.

Accepted Answer

A) long 
B) margined 
C) short 
D) covered 
E) wrapped 
A) long 
B) margined 
C) short 
D) covered 
E) wrapped

Question 16

If you ignore a margin call,your broker:

Accepted Answer

A) will seize all the assets in your account. 
B) will close your account. 
C) may place a short sale on your behalf to cover the amount of the call. 
D) may sell some of your securities to repay the margin loan. 
E) will increase both your margin loan and the rate of interest on that loan. 
A) will seize all the assets in your account. 
B) will close your account. 
C) may place a short sale on your behalf to cover the amount of the call. 
D) may sell some of your securities to repay the margin loan. 
E) will increase both your margin loan and the rate of interest on that loan.

Question 17

Matt short sold 600 shares of stock at $10.50 a share.The initial margin is 80 percent and the maintenance margin is 50 percent.The stock is currently selling for $6.80 a share.What is Matt's account equity at this time? Ignore margin interest.

Accepted Answer

A) $3,070 
B) $5,590 
C) $7,260 
D) $9,950 
E) $11,510 
A) $3,070 
B) $5,590 
C) $7,260 
D) $9,950 
E) $11,510

Question 18

An investor who has a resource constraint:

Accepted Answer

A) pays no income taxes. 
B) has insufficient funds to purchase a security. 
C) has a relatively high marginal tax rate. 
D) has only one source of income. 
E) will only invest in socially acceptable securities. 
A) pays no income taxes. 
B) has insufficient funds to purchase a security. 
C) has a relatively high marginal tax rate. 
D) has only one source of income. 
E) will only invest in socially acceptable securities.

Question 19

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 20

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

Accepted Answer

A) security selection 
B) tax-advantaged 
C) risk aversion 
D) active strategy 
E) asset allocation 
A) security selection 
B) tax-advantaged 
C) risk aversion 
D) active strategy 
E) asset allocation

Which one of the following statements is correct?

Market timing is the:

You are having a discussion with Kate when she mentions that she just initiated a short position on ABC stock.Given that statement,what do you know about Kate's future outlook for ABC stock?

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?

You short sold 600 shares of a stock at $48 a share.The initial margin requirement is 60 percent and the maintenance margin is 30 percent.What is the amount of your total liability for this transaction as initially shown on your account balance sheet?

Briefly describe the NYSE up-tick rule,the rationale for it and the current status of the rule.

A brokerage account in which purchases can be made using credit is referred to as which type of account?

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

A Roth IRA:

Kate just purchased $7,000 worth of stock.She paid $5,000 in cash and borrowed $2,000.In this example,the term margin refers to:

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?

This morning,Josh sold 800 shares of stock that he did not own.This sale is referred to as a:

If you benefit when a security decreases in value,you have a _____ position in the security.

If you ignore a margin call,your broker:

Matt short sold 600 shares of stock at $10.50 a share.The initial margin is 80 percent and the maintenance margin is 50 percent.The stock is currently selling for $6.80 a share.What is Matt's account equity at this time? Ignore margin interest.

An investor who has a resource constraint:

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

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

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

Which one of the following statements is correct?

Market timing is the:

You are having a discussion with Kate when she mentions that she just initiated a short position on ABC stock.Given that statement,what do you know about Kate's future outlook for ABC stock?

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?

You short sold 600 shares of a stock at $48 a share.The initial margin requirement is 60 percent and the maintenance margin is 30 percent.What is the amount of your total liability for this transaction as initially shown on your account balance sheet?

Briefly describe the NYSE up-tick rule,the rationale for it and the current status of the rule.

A brokerage account in which purchases can be made using credit is referred to as which type of account?

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

A Roth IRA:

Kate just purchased $7,000 worth of stock.She paid $5,000 in cash and borrowed $2,000.In this example,the term margin refers to:

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?

This morning,Josh sold 800 shares of stock that he did not own.This sale is referred to as a:

If you benefit when a security decreases in value,you have a _____ position in the security.

If you ignore a margin call,your broker:

Matt short sold 600 shares of stock at $10.50 a share.The initial margin is 80 percent and the maintenance margin is 50 percent.The stock is currently selling for $6.80 a share.What is Matt's account equity at this time? Ignore margin interest.

An investor who has a resource constraint:

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

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

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