Question 1

Which one of the following statements regarding orders is false?

Accepted Answer

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 market order is an order to buy or sell a stock on a specific exchange (market). 
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 market order is an order to buy or sell a stock on a specific exchange (market). D

Question 2

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?

Accepted Answer

A)  50% 
B)  40% 
C)  33% 
D)  60% 
E)  25% 
A)  50% 
B)  40% 
C)  33% 
D)  60% 
E)  25% B

Question 3

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

Question 4

The securities act of 1933 I) requires full disclosure of relevant information relating to the issue of new securities.
II. requires registration of new securities.
III. requires issuance of a prospectus detailing financial prospects of the firm.
IV. established the SEC.
V. requires periodic disclosure of relevant financial information.
VI. empowers SEC to regulate exchanges, OTC trading, brokers, and dealers.

Accepted Answer

A)  I, II, and III 
B)  I, II, III, IV, V, and VI 
C)  I, II, and V 
D)  I, II, and IV 
E)  IV only 
A)  I, II, and III 
B)  I, II, III, IV, V, and VI 
C)  I, II, and V 
D)  I, II, and IV 
E)  IV only

Question 5

Restrictions on trading involving insider information apply to the following, except

Accepted Answer

A)  corporate officers. 
B)  corporate directors. 
C)  major stockholders. 
D)  All of the individuals. 
E)  None of the options. 
A)  corporate officers. 
B)  corporate directors. 
C)  major stockholders. 
D)  All of the individuals. 
E)  None of the options.

Question 6

The preliminary prospectus is referred to as a(n)

Accepted Answer

A)  red herring. 
B)  indenture. 
C)  greenmail. 
D)  tombstone. 
E)  headstone. 
A)  red herring. 
B)  indenture. 
C)  greenmail. 
D)  tombstone. 
E)  headstone.

Question 7

You purchased 100 shares of KO common stock on margin at $60 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)  $42.86 
B)  $50.75 
C)  $49.67 
D)  $80.34 
A)  $42.86 
B)  $50.75 
C)  $49.67 
D)  $80.34

Question 8

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.

Accepted Answer

A)  I, II, and III 
B)  I, III, and IV 
C)  I and IV 
D)  II and III 
E)  I and II 
A)  I, II, and III 
B)  I, III, and IV 
C)  I and IV 
D)  II and III 
E)  I and II

Question 9

The introduction of the ___________________allowed brokers to send orders either for immediate electronic execution or to the specialist, who could seek price improvement from another trader.

Accepted Answer

A)  International Exchange 
B)  NYSE Hybrid Market 
C)  Designated Order Turnaround 
D)  NYSE Euronext 
A)  International Exchange 
B)  NYSE Hybrid Market 
C)  Designated Order Turnaround 
D)  NYSE Euronext

Question 10

NASDAQ subscriber levels

Accepted Answer

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)  permit those with the highest level, 3, to "make a market" in the security; permit those with a level 2 subscription to receive all bid and ask quotes but not to enter their own quotes; and permit level 1 subscribers to receive general information about prices. 
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)  permit those with the highest level, 3, to "make a market" in the security; permit those with a level 2 subscription to receive all bid and ask quotes but not to enter their own quotes; and permit level 1 subscribers to receive general information about prices.

Question 11

A sale by IBM of new stock to the public would be a(n)

Accepted Answer

A)  short sale. 
B)  seasoned equity offering. 
C)  private placement. 
D)  secondary-market transaction. 
E)  initial public offering. 
A)  short sale. 
B)  seasoned equity offering. 
C)  private placement. 
D)  secondary-market transaction. 
E)  initial public offering.

Question 12

A program trade is

Accepted Answer

A)  a trade of 10,000 (or more) shares of a stock. 
B)  a trade of many shares of one stock for one other stock. 
C)  a trade of analytic programs between financial analysts. 
D)  a coordinated purchase or sale of an entire portfolio of stocks. 
E)  not feasible with current technology but is expected to be popular in the near future. 
A)  a trade of 10,000 (or more) shares of a stock. 
B)  a trade of many shares of one stock for one other stock. 
C)  a trade of analytic programs between financial analysts. 
D)  a coordinated purchase or sale of an entire portfolio of stocks. 
E)  not feasible with current technology but is expected to be popular in the near future.

Question 13

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 per 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)  −33.33% 
B)  −25.63% 
C)  −57.14% 
D)  −77.23% 
A)  −33.33% 
B)  −25.63% 
C)  −57.14% 
D)  −77.23%

Question 14

When stocks are held in street name,

Accepted Answer

A)  the investor receives a stock certificate with the owner's street address. 
B)  the investor receives a stock certificate without the owner's street address. 
C)  the investor does not receive a stock certificate. 
D)  the broker holds the stock in the brokerage firm's name on behalf of the client. 
E)  the investor does not receive a stock certificate, and the broker holds the stock in the brokerage firm's name on behalf of the client. 
A)  the investor receives a stock certificate with the owner's street address. 
B)  the investor receives a stock certificate without the owner's street address. 
C)  the investor does not receive a stock certificate. 
D)  the broker holds the stock in the brokerage firm's name on behalf of the client. 
E)  the investor does not receive a stock certificate, and the broker holds the stock in the brokerage firm's name on behalf of the client.

Question 15

The finalized registration statement for new securities approved by the SEC is called

Accepted Answer

A)  a red herring. 
B)  the preliminary statement. 
C)  the prospectus. 
D)  a best-efforts agreement. 
E)  a firm commitment. 
A)  a red herring. 
B)  the preliminary statement. 
C)  the prospectus. 
D)  a best-efforts agreement. 
E)  a firm commitment.

Question 16

Block transactions are transactions for more than _______ shares, and they account for about _____ percent of all trading on the NYSE.

Accepted Answer

A)  1,000; 5 
B)  500; 10 
C)  100,000; 50 
D)  10,000; 30 
E)  5,000; 23 
A)  1,000; 5 
B)  500; 10 
C)  100,000; 50 
D)  10,000; 30 
E)  5,000; 23

Question 17

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%?

Accepted Answer

A)  $50 
B)  $65 
C)  $35 
D)  $40 
A)  $50 
B)  $65 
C)  $35 
D)  $40

Question 18

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 per 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% 
A)  20.03% 
B)  25.67% 
C)  22.22% 
D)  77.46%

Question 19

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 20

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

Exam 3: How Securities Are Traded

Which one of the following statements regarding orders is false?

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?

The secondary market consists of

Restrictions on trading involving insider information apply to the following, except

The preliminary prospectus is referred to as a(n)

You purchased 100 shares of KO common stock on margin at $60 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 introduction of the ___________________allowed brokers to send orders either for immediate electronic execution or to the specialist, who could seek price improvement from another trader.

NASDAQ subscriber levels

A sale by IBM of new stock to the public would be a(n)

A program trade is

When stocks are held in street name,

The finalized registration statement for new securities approved by the SEC is called

Block transactions are transactions for more than _______ shares, and they account for about _____ percent of all trading on the NYSE.

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%?

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 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.

The Investment Environment

Asset Classes and Financial Instruments

Mutual Funds and Other Investment Companies

Risk, Return, and the Historical Record

Capital Allocation to Risky Assets

Efficient Diversification

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

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, Swaps, and Risk Management

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the Cfa Institute

Filters

Block transactions are transactions for more than ___ shares, and they account for about _ percent of all trading on the NYSE.