Exam 4: Organization and Functioning of Securities Markets

Exhibit 4.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Jackie has a margin account with a balance of $150,000. The initial margin deposit is 60 percent and Turtle Industries is currently selling at $50 per share. -Refer to Exhibit 4.1. If the maintenance margin is 25 percent, to what price can Turtle Industries fall before Jackie receives a margin call?

Exhibit 4.5 USE THE INFORMATION BELOW FOR THE FOLLOWING 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 percent 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 percent interest rate. -Suppose you buy a round lot of HS Inc. stock on 55% margin when it is selling at $40 a share. The broker charges a 10 percent annual interest rate and commissions are 4 percent 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?

The Nasdaq National Market System is an order driven market.

The value of the stocks traded in the over-the-counter market is greater than the combined values of the stocks traded on the New York Stock Exchange and the American Stock Exchange combined.

Listed stocks traded on the over-the-counter market are being traded in the third market.

Rule 415 allows corporations to place securities privately with large, sophisticated institutional investors without extensive registration documents.

Exhibit 4.2 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Heidi Talbott has a margin account with a balance of $50,000. The initial margin deposit is 50 percent, and RC Industries is currently selling at $50 per share. -Refer to Exhibit 4.2. How many shares of RC can Heidi buy?

Only the stocks of large companies are traded in the primary market.

The over-the-counter market includes all stocks not listed on one of the major exchanges but constitutes a lesser of a dollar value than the New York and American Exchanges combined.

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

Trading in the secondary markets for Corporate bonds

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

The US secondary market with the largest number of issues traded is the:

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

Trading in the secondary markets for U.S. Government and municipal bonds

Rule 415, shelf registration, allows large firms to register ten years worth of financing needs all at one time.

With a best effort offering, the investment banker performs all of the following roles except:

Exhibit 4.7 USE THE INFORMATION BELOW FOR THE FOLLOWING 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 $55 per share and the company paid dividends of $0.85 per share. Assuming that you borrowed 25% of cost of the purchase, what is your rate of return?

A continuous market that has price continuity requires depth of buyers and sellers.

Exhibit 4.7 USE THE INFORMATION BELOW FOR THE FOLLOWING 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%. -You own 50 shares of Auto Corporation that you purchased for $30 a share. The stock is currently selling for $50 a share and you placed a stop loss order at $45. If the stock price drops to $35 a share what is your return on this investment?