Name: __________________________ Date: _____________



1.
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.
A.
20%
B.
25%
C.
22%
D.
77%
E.
none of the above


2.
You sold short 200 shares of common stock at $60 per share. The initial margin is 60%. Your initial investment was
A.
$4,800.
B.
$12,000.
C.
$5,600.
D.
$7,200.
E.
none of the above.


3.
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?
A.
100 shares
B.
200 shares
C.
50 shares
D.
500 shares
E.
25 shares


4.
Shelf registration
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.


5.
Electronic Communications Networks (ECNs) may be used

I) as an alternative to the NYSE.
II) as an alternative to NASDAQ.
III) by institutional traders.
IV) to eliminate the bid-ask spread.
A.
I and III
B.
II, and IV
C.
I, II, and III
D.
I and IV
E.
I, II, III, and IV


6.
You want to buy 100 shares of Hotstock Inc. at the best possible price as quickly as possible. You would most likely place a
A.
stop-loss order
B.
stop-buy order
C.
market order
D.
limit-sell order
E.
limit-buy order


7.
In 2001, the price of a seat on the NYSE reached a high of
A.
$1,000,000
B.
$2,300,000
C.
$1,750,000
D.
$2,225,000
E.
$3,000,000


8.
The floor broker is best described as
A.
an independent member of the exchange who owns a seat and handles overload work for commission brokers.
B.
someone who makes a market in one or more securities.
C.
a representative of a brokerage firm who is on the floor of the exchange to execute trade.
D.
a frequent trader who performs no public function but executes trades for himself.
E.
any counter party to a trade executed on the floor of the exchange.


9.
You sell short 100 shares of Loser Co. at a market price of $45 per share. Your maximum possible loss is
A.
$4500
B.
unlimited
C.
zero
D.
$9000
E.
cannot tell from the information given


10.
The use of the Internet to trade and underwrite securities
A.
is illegal under SEC regulations.
B.
is regulated by the New York Stock Exchange.
C.
is expected to grow quickly.
D.
increases underwriting costs for a new security issue.
E.
is regulated by the National Association of Securities Dealers.


11.
Which one of the following statements regarding orders is false?
A.
A market order is simply an order to buy or sell a stock immediately at the prevailing market price.
B.
A limit sell order is where investors specify prices at which they are willing to sell a security.
C.
If stock ABC is selling at $50, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $45.
D.
A day order expires at the close of the trading day.
E.
None of the above.


12.
The following statements regarding the specialist are 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.


13.
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.
A.
28%
B.
33%
C.
14%
D.
40%
E.
24%


14.
Assume you sold short 100 shares of common stock at $70 per share. The initial margin is 50%. What would be the maintenance margin if a margin call is made at a stock price of $85?
A.
40.5%
B.
20.5%
C.
35.5%
D.
23.5%
E.
none of the above


15.
The finalized registration statement for new securities approved by the SEC is called
A.
a red herring
B.
the preliminary statement
C.
the prospectus
D.
a best-efforts agreement
E.
a firm commitment


16.
You want to purchase XYZ stock at $60 from your broker using as little of your own money as possible. If initial margin is 50% and you have $3000 to invest, how many shares can you buy?
A.
100 shares
B.
200 shares
C.
50 shares
D.
500 shares
E.
25 shares


17.
A specialist on the Arizona Stock Exchange is offering to buy a security for $37.50. A broker in Oklahoma City wants to sell the security for his client. The Intermarket Trading System shows a bid price of $37.375 on the NYSE. What should the broker do?
A.
Route the order to the Arizona Stock Exchange.
B.
Route the order to the NYSE.
C.
Call the client to see if she has a preference.
D.
Route half of the order to Arizona and the other half to the NYSE.
E.
It doesn't matter - he should flip a coin and go with it.


18.
Shares for short transactions
A.
are usually borrowed from other brokers.
B.
are typically shares held by the short seller's broker in street name.
C.
are borrowed from commercial banks.
D.
B and C.
E.
none of the above.


19.
Discuss the types of seats on the NYSE.

Answer:


20.
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
A.
$12.86
B.
$15.75
C.
$19.67
D.
$13.57
E.
none of the above


21.
Assume you sell short 1000 shares of common stock at $35 per share, with initial margin at 50%. What would be your rate of return if you repurchase the stock at $25/share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction.
A.
20.47%
B.
25.63%
C.
57.14%
D.
77.23%
E.
none of the above


22.
Restrictions on trading involving insider information apply to the following except
A.
corporate officers and directors.
B.
relatives of corporate directors and officers.
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.


23.
The fourth market refers to
A.
trading of exchange-listed securities in the over-the-counter market.
B.
trading of exchange-listed securities on the NYSE or AMEX.
C.
direct trading between investors in exchange-listed securities without benefit of a broker.
D.
trading of foreign stock exchange-listed securities.
E.
none of the above.


24.
List three factors that are listing requirements for the New York Stock Exchange. Why does the exchange have such requirements?

Answer:


25.
Which of the following orders is most useful to short sellers who want to limit their potential losses?
A.
Limit order
B.
Discretionary order
C.
Limit-loss order
D.
Stop-buy order
E.
None of the above


26.
When a firm markets new securities, a preliminary registration statement must be filed with
A.
the exchange on which the security will be listed.
B.
the Securities and Exchange Commission.
C.
the Federal Reserve.
D.
all other companies in the same line of business.
E.
the Federal Deposit Insurance Corporation.


27.
List two advantages and two disadvantages or concerns about the use of Electronic Communications Networks (ECNs).

Answer:


28.
A sale by IBM of new stock to the public would be a(n)
A.
short sale.
B.
seasoned new issue offering.
C.
private placement.
D.
secondary market transaction.
E.
initial public offering.


29.
You sold ABC stock short at $80 per share. Your losses could be minimized by placing a __________:
A.
limit-sell order
B.
limit-buy order
C.
stop-buy order
D.
day-order
E.
none of the above.


30.
You sold short 100 shares of common stock at $45 per share. The initial margin is 50%. Your initial investment was
A.
$4,800.
B.
$12,000.
C.
$2,250.
D.
$7,200.
E.
none of the above.


31.
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.
A.
0.33
B.
0.55
C.
0.43
D.
0.23
E.
0.25


32.
Assume you sell short 100 shares of common stock at $30 per share, with initial margin at 50%. What would be your rate of return if you repurchase the stock at $35/share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction.
A.
-33.33%
B.
-25.63%
C.
-57.14%
D.
-77.23%
E.
none of the above


33.
Assume you sold short 100 shares of common stock at $40 per share. The initial margin is 50%. What would be the maintenance margin if a margin call is made at a stock price of $50?
A.
40%
B.
20%
C.
35%
D.
25%
E.
none of the above


34.
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.
A.
0.33
B.
0.55
C.
0.20
D.
0.23
E.
0.25


35.
You sold short 300 shares of common stock at $55 per share. The initial margin is 60%. At what stock price would you receive a margin call if the maintenance margin is 35%?
A.
$51
B.
$65
C.
$35
D.
$40
E.
none of the above


36.
Regional exchanges
A.
have stricter listing requirements than the NYSE.
B.
service local brokerage firms only if the firms own seats on the NYSE.
C.
handle shares of local firms that don't meet NYSE listing requirements.
D.
automatically delist firms when they have grown enough to meet NYSE listing requirements.
E.
exist only in foreign countries.


37.
You want to purchase GM stock at $40 from your broker using as little of your own money as possible. If initial margin is 50% and you have $4000 to invest, how many shares can you buy?
A.
100 shares
B.
200 shares
C.
50 shares
D.
500 shares
E.
25 shares


38.
Initial margin requirements are determined by
A.
the Securities and Exchange Commission.
B.
the Federal Reserve System.
C.
the New York Stock Exchange.
D.
B and C.
E.
A and B


39.
You sold short 150 shares of common stock at $27 per share. The initial margin is 45%. Your initial investment was
A.
$4,800.60.
B.
$12,000.25.
C.
$2,250.75.
D.
$1,822.50.
E.
none of the above.


40.
The minimum market value required for an initial listing on the New York Stock Exchange is
A.
$2,000,000
B.
$2,500,000
C.
$1,100,000
D.
$60,000,000
E.
100,000,000


41.
The over-the-counter market
A.
has been growing in recent years.
B.
is an automated market.
C.
contains some firms that qualify for NYSE listing.
D.
A and B.
E.
A, B, and C.


42.
A purchase of a new issue of stock takes place
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.


43.
Which of the following is not required under the AIMR standards of professional conduct?
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 AIMR standards.


44.
You purchased XYZ stock at $50 per share. The stock is currently selling at $65. Your gains may be protected by placing a __________
A.
stop-loss order
B.
limit-buy order
C.
market order
D.
limit-sell order
E.
none of the above.


45.
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.
A.
28%
B.
33%
C.
14%
D.
42%
E.
24%


46.
In a "best-efforts" basis
A.
the investment banker buys the stock from the company and resells the issue to the public.
B.
the investment banker agrees to help the firm sell the stock at a favorable price.
C.
the investment banker finds the best marketing arrangement for the investment banking firm.
D.
B and C.
E.
A and B.


47.
The over-the-counter market for exchange-listed securities is called the
A.
third market.
B.
fourth market.
C.
NASDAQ.
D.
after-market.
E.
none of the above.


48.
Which of the following is true regarding private placements of primary security offerings?
A.
Extensive and costly registration statements are required by the SEC.
B.
For very large issues, they are better suited than public offerings.
C.
They trade in secondary markets.
D.
The shares are sold directly to a small group of institutional or wealthy investors.
E.
They have greater liquidity than public offerings.


49.
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.
A.
25%
B.
-33%
C.
44%
D.
-42%
E.
-54%


50.
In a typical underwriting arrangement the investment banking firm

I) sells shares to the public via an underwriting syndicate.
II) purchases the securities from the issuing company.
III) assumes the full risk that the shares may not be sold at the offering price.
IV) agrees to help the firm sell the issue to the public but does not actually purchase the securities.
A.
I, II, and III
B.
I, III, and IV
C.
I and IV
D.
II and III
E.
I and II


51.
Of the secondary stock markets, which have been expanding and which have been contracting? Give some of the reasons for the changes.

Answer:


52.
According to the AIMR Standards of Professional Conduct, AIMR members have responsibilities to all of the following except:
A.
the government
B.
the profession
C.
the public
D.
the employer
E.
clients and prospective clients


53.
You sold short 100 shares of common stock at $75 per share. The initial margin is 50%. At what stock price would you receive a margin call if the maintenance margin is 30%?
A.
$90.23
B.
$88.52
C.
$86.54
D.
$87.12
E.
none of the above


54.
Assume you purchased 200 shares of XYZ 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?
A.
$6,000
B.
$4,000
C.
$7,700
D.
$7,000
E.
$6,300


55.
You buy 300 shares of Qualitycorp for $30 per share and deposit initial margin of 50%. The next day Qualitycorp's price drops to $25 per share. What is your actual margin?
A.
50%
B.
40%
C.
33%
D.
60%
E.
25%


56.
NASDAQ subscriber levels
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.


57.
You sold short 100 shares of common stock at $45 per share. The initial margin is 50%. At what stock price would you receive a margin call if the maintenance margin is 35%?
A.
$50
B.
$65
C.
$35
D.
$40
E.
none of the above


58.
Assume you sold short 100 shares of common stock at $50 per share. The initial margin is 60%. What would be the maintenance margin if a margin call is made at a stock price of $60?
A.
40%
B.
33%
C.
35%
D.
25%
E.
none of the above


59.
Investment bankers
A.
act as intermediaries between issuers of stocks and investors.
B.
act as advisors to companies in helping them analyze their financial needs and find buyers for newly issued securities.
C.
accept deposits from savers and lend them out to companies.
D.
A and B.
E.
A, B, and C.


60.
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.

Answer:



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