Exam 4: Securities Markets and the Economy

Short Form Prospectus Distribution system allows corporations to place securities privately with large, sophisticated institutional investors without extensive registration documents.

Which method(s) is used for selling municipals?

The primary market is where issues are traded between current and potential owners.

Exhibit 4-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) You sell 100 shares short of AMF Corporation when it is selling at $45 per share. Your margin requirement is 60% and the commission on the sale is $50 and the broker charges 10% annual interest. AMF Corporation paid a $0.50 per share dividend while you were short the stock. After one year you cover your short sale at $35 per share with a $50 commission for the purchase. -Refer to Exhibit 4-8. What is your total dollar return on this investment?

You purchased 100 shares of Highlight Company for $20 per share one year ago with a margin of 50%. The stock is currently selling for $28 per share and no dividends were ever paid. The broker charges an annual interest rate of 8% and a $100 commission on both the purchase and sale of these shares. What is your annual rate of return on this investment?

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. How many shares of RC can Heidi buy?

Exhibit 4-1 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Jackie has a margin account with a balance of $150,000. If the initial margin deposit is 60% and Turtle Industries is currently selling at $50 per share: -Refer to Exhibit 4-1. What is Jackie's profit/loss if Turtle's price after one year is $40?

Which of the following is not a major category of membership in an organized stock exchange?

Secondary equity issues are new shares offered by firms that already have stock outstanding.

Exhibit 4-5 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) You decide to sell 100 shares of Topgun Enterprises Inc. short when it is selling at its yearly high of $42.25. Your broker tells you that your margin requirement is 60% and that the commission on the sale is $20. While you are short, Topgun pays a $0.85 per share dividend. At the end of one year you buy your Topgun shares (cover your short sale) at $44 and are charged a commission of $20 and a 5% interest rate. -Suppose you buy a round lot of Altman Industries stock on 50% margin when it is selling at $35 per share. The broker charges a 10% annual interest rate and commissions are 5% of the total stock value on both the purchase and the sale. If at year end you receive a $1.00 per share dividend and sell the stock for $42.63, what is your rate of return on the investment?

An electronic Crossing Systems are electronic facilities that act as brokers to match large buy and sell orders.

Exhibit 4-8 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) You sell 100 shares short of AMF Corporation when it is selling at $45 per share. Your margin requirement is 60% and the commission on the sale is $50 and the broker charges 10% annual interest. AMF Corporation paid a $0.50 per share dividend while you were short the stock. After one year you cover your short sale at $35 per share with a $50 commission for the purchase. -Refer to Exhibit 4-8. What is your annual rate of return on this investment?

It is required by law that a stock market must have a physical location.

Exhibit 4-5 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) You decide to sell 100 shares of Topgun Enterprises Inc. short when it is selling at its yearly high of $42.25. Your broker tells you that your margin requirement is 60% and that the commission on the sale is $20. While you are short, Topgun pays a $0.85 per share dividend. At the end of one year you buy your Topgun shares (cover your short sale) at $44 and are charged a commission of $20 and a 5% interest rate. -Suppose you buy a round lot of HS Inc. stock on 55% margin when it is selling at $40 per share. The broker charges a 10% annual interest rate and commissions are 4% of the total stock value on both the purchase and the sale. If at year end you receive a $0.90 per share dividend and sell the stock for 35 5/8, what is your rate of return on the investment?

Exhibit 4-5 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) You decide to sell 100 shares of Topgun Enterprises Inc. short when it is selling at its yearly high of $42.25. Your broker tells you that your margin requirement is 60% and that the commission on the sale is $20. While you are short, Topgun pays a $0.85 per share dividend. At the end of one year you buy your Topgun shares (cover your short sale) at $44 and are charged a commission of $20 and a 5% interest rate. -Refer to Exhibit 4-5. What is your rate of return on the investment?

In a pure auction market buyers and sellers submit bid-and-ask prices for a given stock to a central location.

The member of the Exchange who acts as a dealer on assigned stocks is known as a

The third market has grown because of the cost factor.

When a market is internally efficient, it means that

Exhibit 4-3 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Kathy Smith has a margin account with a balance of $60,000. If initial margin requirements are 80%, and Jackson Industries is currently selling at $40 per share: -Refer to Exhibit 4-3. How many shares of Jackson can Kathy buy?