Question 1

The cost of buying and selling a stock consists of __________.

Accepted Answer

A) broker's commissions 
B) dealer's bid-asked spread 
C) a price concession an investor may be forced to make 
D) A and B. 
E) A,B,and C. 
A) broker's commissions 
B) dealer's bid-asked spread 
C) a price concession an investor may be forced to make 
D) A and B. 
E) A,B,and C.

Question 2

Shelf registration

Accepted Answer

A) is a way of placing issues in the primary market. 
B) allows firms to register securities for sale over a two-year period. 
C) increases transaction costs to the issuing firm. 
D) A and B. 
E) A and C. 
A) is a way of placing issues in the primary market. 
B) allows firms to register securities for sale over a two-year period. 
C) increases transaction costs to the issuing firm. 
D) A and B. 
E) A and C.

Question 3

NASDAQ subscriber levels

Accepted Answer

A) permit those with the highest level,3,to "make a market" in the security. 
B) permit those with a level 2 subscription to receive all bid and ask quotes,but not to enter their own quotes. 
C) permit level 1 subscribers to receive general information about prices. 
D) include all OTC stocks. 
E) A,B,and C. 
A) permit those with the highest level,3,to "make a market" in the security. 
B) permit those with a level 2 subscription to receive all bid and ask quotes,but not to enter their own quotes. 
C) permit level 1 subscribers to receive general information about prices. 
D) include all OTC stocks. 
E) A,B,and C.

Question 4

A sale by IBM of new stock to the public would be a(n)

Accepted Answer

A) short sale. 
B) seasoned equity offering. 
C) private placement. 
D) secondary market transaction. 
E) initial public offering. 
A) short sale. 
B) seasoned equity offering. 
C) private placement. 
D) secondary market transaction. 
E) initial public offering.

Question 5

A program trade is

Accepted Answer

A) a trade of 10,000 (or more) shares of a stock. 
B) a trade of many shares of one stock for one other stock. 
C) a trade of analytic programs between financial analysts. 
D) a coordinated purchase or sale of an entire portfolio of stocks. 
E) not feasible with current technology but is expected to be popular in the near future. 
A) a trade of 10,000 (or more) shares of a stock. 
B) a trade of many shares of one stock for one other stock. 
C) a trade of analytic programs between financial analysts. 
D) a coordinated purchase or sale of an entire portfolio of stocks. 
E) not feasible with current technology but is expected to be popular in the near future.

Question 6

Average second-year IPO returns in the US are approximately ____________ percent.

Accepted Answer

A) 6.7 
B) 18.2 
C) 26.4 
D) 7.0 
E) 9.1 
A) 6.7 
B) 18.2 
C) 26.4 
D) 7.0 
E) 9.1

Question 7

You sold short 200 shares of common stock at $60 per share.The initial margin is 60%.Your initial investment was

Accepted Answer

A) $4,800. 
B) $12,000. 
C) $5,600. 
D) $7,200. 
E) none of the above. 
A) $4,800. 
B) $12,000. 
C) $5,600. 
D) $7,200. 
E) none of the above.

Question 8

The finalized registration statement for new securities approved by the SEC is called

Accepted Answer

A) a red herring 
B) the preliminary statement 
C) the prospectus 
D) a best-efforts agreement 
E) a firm commitment 
A) a red herring 
B) the preliminary statement 
C) the prospectus 
D) a best-efforts agreement 
E) a firm commitment

Question 9

You want to purchase IBM stock at $80 from your broker using as little of your own money as possible.If initial margin is 50% and you have $2000 to invest,how many shares can you buy?

Accepted Answer

A) 100 shares 
B) 200 shares 
C) 50 shares 
D) 500 shares 
E) 25 shares 
A) 100 shares 
B) 200 shares 
C) 50 shares 
D) 500 shares 
E) 25 shares

Question 10

You purchased 100 shares of common stock on margin at $40 per share.Assume the initial margin is 50% and the stock pays no dividend.What would the maintenance margin be if a margin call is made at a stock price of $25? Ignore interest on margin.

Accepted Answer

A) 0.33 
B) 0.55 
C) 0.20 
D) 0.23 
E) 0.25 
A) 0.33 
B) 0.55 
C) 0.20 
D) 0.23 
E) 0.25

Question 11

You purchased 300 shares of common stock on margin for $60 per share.The initial margin is 60% and the stock pays no dividend.What would your rate of return be if you sell the stock at $45 per share? Ignore interest on margin.

Accepted Answer

A) 25.00% 
B) -33.33% 
C) 44.31% 
D) -41.67% 
E) -54.22% 
A) 25.00% 
B) -33.33% 
C) 44.31% 
D) -41.67% 
E) -54.22%

Question 12

You want to buy 100 shares of Hotstock Inc.at the best possible price as quickly as possible.You would most likely place a

Accepted Answer

A) stop-loss order 
B) stop-buy order 
C) market order 
D) limit-sell order 
E) limit-buy order 
A) stop-loss order 
B) stop-buy order 
C) market order 
D) limit-sell order 
E) limit-buy order

Question 13

Discuss margin buying of common stocks.Include in your discussion the advantages and disadvantages,the types of margin requirements,how these requirements are met,and who determines these requirements.

Accepted Answer

Buying stock on margin means buying stoc

Question 14

Despite large first-day IPO returns,average first-year returns in the US are approximately ____________ percent.

Accepted Answer

A) 7.2 
B) 18.2 
C) 26.4 
D) 4.8 
E) 9.1 
A) 7.2 
B) 18.2 
C) 26.4 
D) 4.8 
E) 9.1

Question 15

The average daily number of shares traded on the NYSE in 2008 was approximately ____________ dollars.

Accepted Answer

A) over 3 billion 
B) 1.8 trillion 
C) 12 billion 
D) 4 trillion 
E) none of the above 
A) over 3 billion 
B) 1.8 trillion 
C) 12 billion 
D) 4 trillion 
E) none of the above

Question 16

Restrictions on trading involving insider information apply to the following except

Accepted Answer

A) corporate officers. 
B) corporate directors. 
C) major stockholders. 
D) All of the above are subject to insider trading restrictions. 
E) None of the above is subject to insider trading restrictions. 
A) corporate officers. 
B) corporate directors. 
C) major stockholders. 
D) All of the above are subject to insider trading restrictions. 
E) None of the above is subject to insider trading restrictions.

Question 17

Which of the following orders instructs the broker to sell at or above a specified price?

Accepted Answer

A) Limit-buy order 
B) Discretionary order 
C) Limit-sell order 
D) Stop-buy order 
E) Market order 
A) Limit-buy order 
B) Discretionary order 
C) Limit-sell order 
D) Stop-buy order 
E) Market order

Question 18

The securities act of 1933 ____________.
I.requires full disclosure of relevant information relating to the issue of new securities
II.requires registration of new securities
III.requires issuance of a prospectus detailing financial prospects of the firm
IV.established the SEC
V.requires periodic disclosure of relevant financial information
VI.empowers SEC to regulate exchanges,OTC trading,brokers,and dealers

Accepted Answer

A) I, II and III 
B) I, II, III, IV, V, and VI 
C) I, II and V 
D) I, II and IV 
E) IV only 
A) I, II and III 
B) I, II, III, IV, V, and VI 
C) I, II and V 
D) I, II and IV 
E) IV only

Question 19

Which of the following is not required under the CFA Institute Standards of Professional Conduct?

Accepted Answer

A) knowledge of all applicable laws, rules and regulations 
B) disclosure of all personal investments whether or not they may conflict with a client's investments 
C) disclosure of all conflicts to clients and prospects 
D) reasonable inquiry into a client's financial situation 
E) All of the above are required under the CFA Institute standards. 
A) knowledge of all applicable laws, rules and regulations 
B) disclosure of all personal investments whether or not they may conflict with a client's investments 
C) disclosure of all conflicts to clients and prospects 
D) reasonable inquiry into a client's financial situation 
E) All of the above are required under the CFA Institute standards.

Question 20

You purchased 100 shares of common stock on margin for $35 per share.The initial margin is 50% and the stock pays no dividend.What would your rate of return be if you sell the stock at $42 per share? Ignore interest on margin.

Accepted Answer

A) 28% 
B) 33% 
C) 14% 
D) 40% 
E) 24% 
A) 28% 
B) 33% 
C) 14% 
D) 40% 
E) 24%

Exam 3: How Securities are Traded

The cost of buying and selling a stock consists of __________.

Shelf registration

NASDAQ subscriber levels

A sale by IBM of new stock to the public would be a(n)

A program trade is

Average second-year IPO returns in the US are approximately ____________ percent.

You sold short 200 shares of common stock at $60 per share.The initial margin is 60%.Your initial investment was

The finalized registration statement for new securities approved by the SEC is called

You want to purchase IBM stock at $80 from your broker using as little of your own money as possible.If initial margin is 50% and you have $2000 to invest,how many shares can you buy?

You purchased 100 shares of common stock on margin at $40 per share.Assume the initial margin is 50% and the stock pays no dividend.What would the maintenance margin be if a margin call is made at a stock price of $25? Ignore interest on margin.

You purchased 300 shares of common stock on margin for $60 per share.The initial margin is 60% and the stock pays no dividend.What would your rate of return be if you sell the stock at $45 per share? Ignore interest on margin.

You want to buy 100 shares of Hotstock Inc.at the best possible price as quickly as possible.You would most likely place a

Discuss margin buying of common stocks.Include in your discussion the advantages and disadvantages,the types of margin requirements,how these requirements are met,and who determines these requirements.

Despite large first-day IPO returns,average first-year returns in the US are approximately ____________ percent.

The average daily number of shares traded on the NYSE in 2008 was approximately ____________ dollars.

Restrictions on trading involving insider information apply to the following except

Which of the following orders instructs the broker to sell at or above a specified price?

Which of the following is not required under the CFA Institute Standards of Professional Conduct?

You purchased 100 shares of common stock on margin for $35 per share.The initial margin is 50% and the stock pays no dividend.What would your rate of return be if you sell the stock at $42 per share? Ignore interest on margin.

The Investment Environment

Asset Classes and Financial Instruments

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and Capital Allocation to Risky Assets

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

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