Question 1

You recently purchased 200 shares of stock at a cost per share of $23.50. The initial margin requirement on this stock is 75% and the maintenance margin is 50%. The stock is currently valued at $25.00 a share. What is your current margin position? Ignore margin interest.

Accepted Answer

A) 73.01% 
B) 73.83% 
C) 74.40% 
D) 76.50% 
E) 76.79%

Question 2

Stephen is purchasing 1,000 shares of KPT, Inc., stock at a price per share of $18.60. What is the minimum amount the Federal Reserve will require Stephen to pay in cash for this purchase?

Accepted Answer

A) $5,500 
B) $7,440 
C) $9,300 
D) $11,160 
E) $18,600

Question 3

Suzette recently purchased 300 shares of Nu Electronics stock for $4.40 a share. Her broker required a cash payment of $1,320, plus trading costs, for the purchase. What is the initial margin requirement on this stock?

Accepted Answer

A) 70% 
B) 75% 
C) 80% 
D) 90% 
E) 100%

Question 4

Theresa has a margin account with a 70% initial margin requirement and a 35% maintenance margin. What is the maximum dollar amount of stock she can purchase if her cash balance in the account is $27,000?

Accepted Answer

A) $9,450.00 
B) $18,900.00 
C) $38,571.43 
D) $58,833.33 
E) $77,142.86

Question 5

You purchased 1,000 shares of stock at $35 a share. The stock is currently selling for $39 a share. The initial margin was 70% and the maintenance margin is 30%. What is your current margin position?

Accepted Answer

A) 28.50% 
B) 25.00% 
C) 63.59% 
D) 73.08% 
E) 75.00%

Question 6

You currently have $5,000 in cash in your brokerage account. You decide to spend $8,000 to purchase shares of stock and borrow $3,000 from your broker to do so. Which type of brokerage account do you have?

Accepted Answer

A) Cash 
B) Wrap 
C) Margin 
D) Short 
E) Asset allocation

Question 7

Nelson purchased 1,600 shares of stock for $18.75 a share. The initial margin requirement is 70% and the maintenance margin is 40%. What is the maximum percent by which the stock price can decline before he receives a margin call?

Accepted Answer

A) 30% 
B) 45% 
C) 50% 
D) 65% 
E) 70%

Question 8

Neshoba Industries stock is selling for $33 a share. You would like to purchase as many shares of this stock as you can. Your margin account currently has available cash of $7,000 and the initial margin requirement is 65%. What is the maximum number of shares you can buy?

Accepted Answer

A) 193 shares 
B) 287 shares 
C) 300 shares 
D) 326 shares 
E) 606 shares

Question 9

You purchased 400 shares of stock for $28.50 a share. The initial margin requirement is 60% and the maintenance margin is 30%. What is the maximum percentage decrease that can occur in the stock price before you receive a margin call?

Accepted Answer

A) 35.01% 
B) 42.86% 
C) 46.15% 
D) 57.14% 
E) 62.54%

Question 10

The minimum equity that must be maintained at all times in a margin account is called the:

Accepted Answer

A) initial margin. 
B) initial equity position. 
C) maintenance margin. 
D) call requirement. 
E) margin call.

Question 11

Mary purchased 100 shares of Best Foods stock on margin at a price of $37 a share. The initial margin requirement is 60% and the maintenance margin is 35%. What is the lowest the stock price can go before Mary receives a margin call?

Accepted Answer

A) $22.77 
B) $24.50 
C) $26.43 
D) $28.00 
E) $33.00

Question 12

What is the maximum loss you can incur if you have a long position on a stock in a cash account?

Accepted Answer

A) The initial investment 
B) The initial margin 
C) The margin loan plus interest 
D) Zero 
E) Unlimited

Question 13

A stock was purchased for $45 a share and sold ten months later for $48 a share. If the shares were purchased totally with cash the holding period return would be ________% as compared to ________% if the purchase was made using 70% margin. Ignore trading costs and margin interest.

Accepted Answer

A) 6.25; 8.93 
B) 6.25; 9.52 
C) 6.67; 8.93 
D) 6.67; 9.52 
E) 8.93; 9.52

Question 14

Three months ago, Trevor purchased 500 shares of stock at a cost per share of $64.20. The purchase was made on margin with an initial margin requirement of 65%. Trevor pays 1.6% over the call money rate of 4.8%. What will his total dollar return be on this investment if he sells his shares today at a price per share of $63.40? Ignore dividends.

Accepted Answer

A) −$548.60 
B) −$539.67 
C) −$534.95 
D) −$575.60 
E) −$591.19

Question 15

Maddie recently short sold 400 shares of common stock for $25 a share. Her initial margin requirement was 70% and the maintenance margin is 35%. The stock is currently trading at $22.22 a share. What is her current short position in this stock?

Accepted Answer

A) $2,666 
B) $7,000 
C) $8,888 
D) $10,000 
E) $11,333

Question 16

Last week, you sold 800 shares of Ace stock for $24,000. The sale was a short sale with an initial margin requirement of 70%. The maintenance margin is 40%. Some positive news concerning the company was released last night and the stock price jumped this morning to $35 a share. What is your current margin position in this stock?

Accepted Answer

A) 61.33% 
B) 56.67% 
C) 45.71% 
D) 38.68% 
E) 27.50%

Question 17

A discretionary account:

Accepted Answer

A) authorizes a broker to trade securities on your behalf. 
B) charges an annual fee to cover all trading and management services. 
C) is the term applied to brokerage accounts with check-writing and credit card services. 
D) is the same as a wrap account. 
E) is the account used to pledge securities as collateral for a margin loan.

Question 18

Marcia purchased 100 shares of Hyde Foods stock on margin at a price of $35 a share. The initial margin requirement is 65% and the maintenance margin is 35%. What is the lowest the stock price can go before Marcia receives a margin call?

Accepted Answer

A) $18.85 
B) $24.50 
C) $28.00 
D) $30.00 
E) $33.00

Question 19

John just used $15,000 of cash plus a $6,000 margin loan to purchase $21,000 worth of Walmart (WMT)stock. This is the only transaction he has made in this account. What is his current account margin?

Accepted Answer

A) $3,000 
B) $6,000 
C) $9,000 
D) $15,000 
E) $21,000

Question 20

Elizabeth short sold 500 shares of stock at $25 a share. One month later, she covered the short at a price of $22. What was her total dollar return on this investment?

Accepted Answer

A) −$2,400 
B) −$1,800 
C) $1,500 
D) $1,600 
E) $1,800

Exam 2: The Investment Process