Question 1

Which of the following orders instructs the broker to buy at the current market price?

Accepted Answer

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

Question 2

The following statements regarding the specialist are true:

Accepted Answer

A) Specialists maintain a book listing outstanding unexecuted limit orders. 
B) Specialists earn income from commissions and spreads in stock prices. 
C) Specialists stand ready to trade at quoted bid and ask prices. 
D) Specialists cannot trade in their own accounts. 
E) A,B,and C are all true. 
A) Specialists maintain a book listing outstanding unexecuted limit orders. 
B) Specialists earn income from commissions and spreads in stock prices. 
C) Specialists stand ready to trade at quoted bid and ask prices. 
D) Specialists cannot trade in their own accounts. 
E) A,B,and C are all true.

Question 3

Specialists on stock exchanges perform the following functions

Accepted Answer

A) Act as dealers in their own accounts. 
B) Analyze the securities in which they specialize. 
C) Provide liquidity to the market. 
D) A and B. 
E) A and C. 
A) Act as dealers in their own accounts. 
B) Analyze the securities in which they specialize. 
C) Provide liquidity to the market. 
D) A and B. 
E) A and C.

Question 4

You purchased JNJ stock at $50 per share.The stock is currently selling at $65.Your gains may be protected by placing a __________.

Accepted Answer

A) stop-buy order. 
B) limit-buy order. 
C) market order. 
D) limit-sell order. 
E) none of the above. 
A) stop-buy order. 
B) limit-buy order. 
C) market order. 
D) limit-sell order. 
E) none of the above.

Question 5

You purchased 100 shares of common stock on margin at $45 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 $30? Ignore interest on margin.

Accepted Answer

A) 0.33 
B) 0.55 
C) 0.43 
D) 0.23 
E) 0.25 
A) 0.33 
B) 0.55 
C) 0.43 
D) 0.23 
E) 0.25

Question 6

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

Accepted Answer

A) 6.7 
B) 18.2 
C) 26.4 
D) 5.3 
E) 10.4 
A) 6.7 
B) 18.2 
C) 26.4 
D) 5.3 
E) 10.4

Question 7

You sold short 100 shares of common stock at $45 per share.The initial margin is 50%.Your initial investment was

Accepted Answer

A) $4,800. 
B) $12,000. 
C) $2,250. 
D) $7,200. 
E) none of the above. 
A) $4,800. 
B) $12,000. 
C) $2,250. 
D) $7,200. 
E) none of the above.

Question 8

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

Accepted Answer

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

Question 9

You purchased 100 shares of common stock on margin for $50 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 $56 per share? Ignore interest on margin.

Accepted Answer

A) 28% 
B) 33% 
C) 14% 
D) 42% 
E) 24% 
A) 28% 
B) 33% 
C) 14% 
D) 42% 
E) 24%

Question 10

You purchased 1000 shares of CSCO common stock on margin at $19 per share.Assume the initial margin is 50% and the maintenance margin is 30%.Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.

Accepted Answer

A) $12.86 
B) $15.75 
C) $19.67 
D) $13.57 
E) none of the above 
A) $12.86 
B) $15.75 
C) $19.67 
D) $13.57 
E) none of the above

Question 11

Assume you sell short 100 shares of common stock at $45 per share,with initial margin at 50%.What would be your rate of return if you repurchase the stock at $40/share? The stock paid no dividends during the period,and you did not remove any money from the account before making the offsetting transaction.

Accepted Answer

A) 20.03% 
B) 25.67% 
C) 22.22% 
D) 77.46% 
E) none of the above 
A) 20.03% 
B) 25.67% 
C) 22.22% 
D) 77.46% 
E) none of the above

Question 12

The secondary market consists of

Accepted Answer

A) transactions on the AMEX. 
B) transactions in the OTC market. 
C) transactions through the investment banker. 
D) A and B. 
E) A,B,and C. 
A) transactions on the AMEX. 
B) transactions in the OTC market. 
C) transactions through the investment banker. 
D) A and B. 
E) A,B,and C.

Question 13

Assume you purchased 200 shares of GE common stock on margin at $70 per share from your broker.If the initial margin is 55%,how much did you borrow from the broker?

Accepted Answer

A) $6,000 
B) $4,000 
C) $7,700 
D) $7,000 
E) $6,300 
A) $6,000 
B) $4,000 
C) $7,700 
D) $7,000 
E) $6,300

Question 14

You purchased 1000 shares of common stock on margin at $30 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 $24? Ignore interest on margin.

Accepted Answer

A) 0.33 
B) 0.375 
C) 0.20 
D) 0.23 
E) 0.25 
A) 0.33 
B) 0.375 
C) 0.20 
D) 0.23 
E) 0.25

Question 15

The minimum market value required for an initial listing on the New York Stock Exchange is

Accepted Answer

A) $2,000,000 
B) $2,500,000 
C) $1,100,000 
D) $60,000,000 
E) 100,000,000 
A) $2,000,000 
B) $2,500,000 
C) $1,100,000 
D) $60,000,000 
E) 100,000,000

Question 16

Which of the following orders is most useful to short sellers who want to limit their potential losses?

Accepted Answer

A) Limit order 
B) Discretionary order 
C) Limit-loss order 
D) Stop-buy order 
E) None of the above 
A) Limit order 
B) Discretionary order 
C) Limit-loss order 
D) Stop-buy order 
E) None of the above

Question 17

A purchase of a new issue of stock takes place

Accepted Answer

A) in the secondary market. 
B) in the primary market. 
C) usually with the assistance of an investment banker. 
D) A and B. 
E) B and C. 
A) in the secondary market. 
B) in the primary market. 
C) usually with the assistance of an investment banker. 
D) A and B. 
E) B and C.

Question 18

In 2005,the price of a seat on the NYSE reached a high of

Accepted Answer

A) $1,000,000 
B) $4,000,000 
C) $1,750,000 
D) $2,225,000 
E) $3,000,000 
A) $1,000,000 
B) $4,000,000 
C) $1,750,000 
D) $2,225,000 
E) $3,000,000

Question 19

Which of the following orders instructs the broker to buy 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 20

You sold JCP stock short at $80 per share.Your losses could be minimized by placing a __________.

Accepted Answer

A) limit-sell order 
B) limit-buy order 
C) stop-buy order 
D) day-order 
E) none of the above. 
A) limit-sell order 
B) limit-buy order 
C) stop-buy order 
D) day-order 
E) none of the above.

Exam 3: How Securities are Traded

Which of the following orders instructs the broker to buy at the current market price?

The following statements regarding the specialist are true:

Specialists on stock exchanges perform the following functions

You purchased JNJ stock at $50 per share.The stock is currently selling at $65.Your gains may be protected by placing a __________.

You purchased 100 shares of common stock on margin at $45 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 $30? Ignore interest on margin.

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

You sold short 100 shares of common stock at $45 per share.The initial margin is 50%.Your initial investment was

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

You purchased 100 shares of common stock on margin for $50 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 $56 per share? Ignore interest on margin.

You purchased 1000 shares of CSCO common stock on margin at $19 per share.Assume the initial margin is 50% and the maintenance margin is 30%.Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.

The secondary market consists of

Assume you purchased 200 shares of GE common stock on margin at $70 per share from your broker.If the initial margin is 55%,how much did you borrow from the broker?

You purchased 1000 shares of common stock on margin at $30 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 $24? Ignore interest on margin.

The minimum market value required for an initial listing on the New York Stock Exchange is

Which of the following orders is most useful to short sellers who want to limit their potential losses?

A purchase of a new issue of stock takes place

In 2005,the price of a seat on the NYSE reached a high of

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

You sold JCP stock short at $80 per share.Your losses could be minimized by placing a __________.

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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