Question 1

When a market is externally efficient, it means that

Accepted Answer

A)  Timely and accurate information is available 
B)  The market is liquid 
C)  Transaction costs are low 
D)  Prices adjust rapidly to new information 
E)  The number of buyers and sellers are the same 
A)  Timely and accurate information is available 
B)  The market is liquid 
C)  Transaction costs are low 
D)  Prices adjust rapidly to new information 
E)  The number of buyers and sellers are the same

Question 2

In recent years there has been a trend toward the consolidation of existing exchanges in developed markets, such as London, Frankfurt and Paris.

Accepted Answer

A) True 
 B)False

Question 3

Negotiation, competitive bids, and best efforts are three forms of underwriting arrangements.

Accepted Answer

A) True 
 B)False

Question 4

Electronic Communication Networks and Electronic Crossing Systems do provide listing services.

Accepted Answer

A) True 
 B)False

Question 5

Investors can leverage their stock transactions with the use of

Accepted Answer

A)  Margin orders 
B)  Stop loss orders 
C)  Limit orders 
D)  Market orders 
E)  Specialists 
A)  Margin orders 
B)  Stop loss orders 
C)  Limit orders 
D)  Market orders 
E)  Specialists

Question 6

In a negotiated bid, the underwriter carries out the following service(s)

Accepted Answer

A)  Origination, risk-bearing, and distribution. 
B)  Origination and risk-bearing. 
C)  Risk-bearing and distribution. 
D)  Origination and distribution. 
E)  Risk-bearing and distribution 
A)  Origination, risk-bearing, and distribution. 
B)  Origination and risk-bearing. 
C)  Risk-bearing and distribution. 
D)  Origination and distribution. 
E)  Risk-bearing and distribution

Question 7

Exhibit 4-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
You decide to sell 100 shares of Davis Industries short when it is selling at its yearly high of $35. Your broker tells you that your margin requirement is 55% and that the commission on the sale is $15. While you are short, Davis pays a $0.75 per share dividend. At the end of one year you buy your Davis shares (cover your short sale) at $30 and are charged a commission of $15 and a 6% interest rate.
-Refer to Exhibit 4-4. What is your rate of return on the investment?

Accepted Answer

A)  10.48% 
B)  12.87% 
C)  13.98% 
D)  15.49% 
E)  18.87% 
A)  10.48% 
B)  12.87% 
C)  13.98% 
D)  15.49% 
E)  18.87%

Question 8

Specialists provide added liquidity in the NASDAQ market.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following is an underwriting function?

Accepted Answer

A)  Origination 
B)  Risk-bearing 
C)  Distribution 
D)  Choices b and 
E)  All of the above 
A)  Origination 
B)  Risk-bearing 
C)  Distribution 
D)  Choices b and 
E)  All of the above

Question 10

The fourth market refers to alternative trading systems such as Electronic Communication Networks and Electronic Crossing Systems.

Accepted Answer

A) True 
 B)False

Question 11

Short Form Prospectus Distribution system allows large firms to register ten years worth of financing needs all at one time.

Accepted Answer

A) True 
 B)False

Question 12

Margin transaction involves borrowing part of the cost of an investment.

Accepted Answer

A) True 
 B)False

Question 13

Exhibit 4-7
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%.
-Refer to Exhibit 4-7. At the end of one year shares of RossCorp stock are selling for $35 per share and the company paid dividends of $0.85 per share. Assuming that you paid the full cost of the purchase, what is your rate of return if you sell RossCorp stock?

Accepted Answer

A)  -33.05% 
B)  -23.42% 
C)  23.42% 
D)  33.05% 
E)  -25.35% 
A)  -33.05% 
B)  -23.42% 
C)  23.42% 
D)  33.05% 
E)  -25.35%

Question 14

A good secondary market is important to the efficiency of the primary market.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 4-2
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Heidi Talbott has a margin account with a balance of $50,000. If the initial margin deposit is 50%, and RC Industries is currently selling at $50 per share:
-Refer to Exhibit 4-2. What is Heidi's profit if RC's price rises to $80?

Accepted Answer

A)  $55,000 
B)  $50,000 
C)  $60,000 
D)  $68,270 
E)  $28,570 
A)  $55,000 
B)  $50,000 
C)  $60,000 
D)  $68,270 
E)  $28,570

Question 16

All of the following are advantages of secondary markets except

Accepted Answer

A)  Provide liquidity to individuals holding the securities. 
B)  Support the primary market by reducing the required rate of return due to the lower liquidity risk for securities. 
C)  Provide price discovery for corporations selling seasoned securities. 
D)  Impact market efficiency and price volatility. 
E)  All of the above are advantages of secondary markets. 
A)  Provide liquidity to individuals holding the securities. 
B)  Support the primary market by reducing the required rate of return due to the lower liquidity risk for securities. 
C)  Provide price discovery for corporations selling seasoned securities. 
D)  Impact market efficiency and price volatility. 
E)  All of the above are advantages of secondary markets.

Question 17

A market where prices adjust rapidly to new information is considered to be internally efficient.

Accepted Answer

A) True 
 B)False

Question 18

Trading in the secondary markets for government bonds

Accepted Answer

A)  Takes place through a network of primary dealers 
B)  Takes place over the counter by dealers who buy and sell on their own account 
C)  Takes place on the TSX 
D)  All of the above 
E)  None of the above 
A)  Takes place through a network of primary dealers 
B)  Takes place over the counter by dealers who buy and sell on their own account 
C)  Takes place on the TSX 
D)  All of the above 
E)  None of the above

Question 19

A limit order book refers to a system where

Accepted Answer

A)  All limit orders are electronically matched. 
B)  All limit orders are visible to the specialist only. 
C)  All limit orders are visible to markets makers and specialists. 
D)  Orders are routed through Super Dot. 
E)  None of the above. 
A)  All limit orders are electronically matched. 
B)  All limit orders are visible to the specialist only. 
C)  All limit orders are visible to markets makers and specialists. 
D)  Orders are routed through Super Dot. 
E)  None of the above.

Question 20

Informational efficiency is where the cost of acquiring information is very cheap.

Accepted Answer

A) True 
 B)False

Exam 4: Securities Markets and the Economy

When a market is externally efficient, it means that

In recent years there has been a trend toward the consolidation of existing exchanges in developed markets, such as London, Frankfurt and Paris.

Negotiation, competitive bids, and best efforts are three forms of underwriting arrangements.

Electronic Communication Networks and Electronic Crossing Systems do provide listing services.

Investors can leverage their stock transactions with the use of

In a negotiated bid, the underwriter carries out the following service(s)

Specialists provide added liquidity in the NASDAQ market.

Which of the following is an underwriting function?

The fourth market refers to alternative trading systems such as Electronic Communication Networks and Electronic Crossing Systems.

Short Form Prospectus Distribution system allows large firms to register ten years worth of financing needs all at one time.

Margin transaction involves borrowing part of the cost of an investment.

A good secondary market is important to the efficiency of the primary market.

Exhibit 4-2 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Heidi Talbott has a margin account with a balance of $50,000. If the initial margin deposit is 50%, and RC Industries is currently selling at $50 per share: -Refer to Exhibit 4-2. What is Heidi's profit if RC's price rises to $80?

All of the following are advantages of secondary markets except

A market where prices adjust rapidly to new information is considered to be internally efficient.

Trading in the secondary markets for government bonds

A limit order book refers to a system where

Informational efficiency is where the cost of acquiring information is very cheap.

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Efficient Capital Markets

An Introduction to Portfolio Management

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

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