Question 1

All of the following are advantages of secondary markets except

Accepted Answer

A) Provide liquidity to individuals holding the securities. 
B) Support the primary market by reducing the required rate of return due to the lower liquidity risk for securities. 
C) Provide price discovery for corporations selling seasoned securities. 
D) Impact market efficiency and price volatility. 
E) All of the above are advantages of secondary markets. 
A) Provide liquidity to individuals holding the securities. 
B) Support the primary market by reducing the required rate of return due to the lower liquidity risk for securities. 
C) Provide price discovery for corporations selling seasoned securities. 
D) Impact market efficiency and price volatility. 
E) All of the above are advantages of secondary markets.

Question 2

Rule 144A reduced registration documentation requirements for placing securities privately with large institutional investors.

Accepted Answer

A) True 
 B)False

Question 3

You sell short 100 shares of Hi-Light Corporation when it is trading at $70. Your margin requirement is 50%. Assuming there was no commission and the maintenance margin is 25%, at what stock price would you receive a margin call?

Accepted Answer

A) $76 
B) $80 
C) $84 
D) $88 
E) $92 
A) $76 
B) $80 
C) $84 
D) $88 
E) $92

Question 4

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. What is Heidi's profit if RC's price rises to $80?

Accepted Answer

A) $55,000 
B) $50,000 
C) $60,000 
D) $68,270 
E) $28,570 
A) $55,000 
B) $50,000 
C) $60,000 
D) $68,270 
E) $28,570

Question 5

Which of the following is not a characteristic of a good market for goods and services?

Accepted Answer

A) Timely and accurate information 
B) Liquidity 
C) Low transaction costs 
D) External efficiency 
E) All of the above are characteristics of a good market. 
A) Timely and accurate information 
B) Liquidity 
C) Low transaction costs 
D) External efficiency 
E) All of the above are characteristics of a good market.

Question 6

A block house is a brokerage firm that buys and sells blocks of stock for institutions.

Accepted Answer

A) True 
 B)False

Question 7

Specialists provide added liquidity in the Nasdaq market.

Accepted Answer

A) True 
 B)False

Question 8

In a dealer market trading system shares of stock are sold to the investor with the highest bid price and bought from the seller with the lowest offering price.

Accepted Answer

A) True 
 B)False

Question 9

A market where prices adjust rapidly to new information is considered to be internally efficient.

Accepted Answer

A) True 
 B)False

Question 10

Which of the following is not a secondary equity market?

Accepted Answer

A) Treasury market 
B) National exchanges 
C) Regional exchanges 
D) Over-the-counter market 
E) All of the above are secondary equity markets. 
A) Treasury market 
B) National exchanges 
C) Regional exchanges 
D) Over-the-counter market 
E) All of the above are secondary equity markets.

Question 11

Exhibit 4.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Kathy Smith has a margin account with a balance of $60,000. Initial margin requirements are 80 percent, and Jackson Industries is currently selling at $40 per share.
-Refer to Exhibit 4.3. If the maintenance margin is 25 percent, to what price can Jackson Industries fall before Kathy receives a margin call?

Accepted Answer

A) $21.75 
B) $23.00 
C) $10.67 
D) $15.93 
E) None of the above 
A) $21.75 
B) $23.00 
C) $10.67 
D) $15.93 
E) None of the above

Question 12

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

Accepted Answer

A) True 
 B)False

Question 13

A 1994 study concluded dealers were colluding to maintain wide bid/ask spreads by concentrating market quotes in quarters instead of eighths. This study eventually led to new order handling rules that required quotes to be available to the public through:

Accepted Answer

A) NASDAQ market 
B) Electronic communications networks (ECN) 
C) High frequency trading (HFT) 
D) Algorithmic trading (AT) 
E) Intermarket trading system (ITS) 
A) NASDAQ market 
B) Electronic communications networks (ECN) 
C) High frequency trading (HFT) 
D) Algorithmic trading (AT) 
E) Intermarket trading system (ITS)

Question 14

Informational efficiency is where the cost of acquiring information is very cheap.

Accepted Answer

A) True 
 B)False

Question 15

Exhibit 4.8
USE THE INFORMATION BELOW FOR THE FOLLOWING 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?

Accepted Answer

A) $1,000 
B) $900 
C) $850 
D) $670 
E) $520 
A) $1,000 
B) $900 
C) $850 
D) $670 
E) $520

Question 16

Which of the following is not a characteristic of shelf registrations? Shelf registrations:

Accepted Answer

A) Were introduced by Rule 415. 
B) Allow large firms to register security issues and sell them piecemeal during the following six years. 
C) Provide flexibility and reduce registration fees and expenses. 
D) Are typically used for the sale of straight debentures rather than common stock or convertible issues. 
E) All of the above are characteristics of shelf registrations. 
A) Were introduced by Rule 415. 
B) Allow large firms to register security issues and sell them piecemeal during the following six years. 
C) Provide flexibility and reduce registration fees and expenses. 
D) Are typically used for the sale of straight debentures rather than common stock or convertible issues. 
E) All of the above are characteristics of shelf registrations.

Question 17

The over-the-counter market lists more stocks than the New York Stock Exchange and the American Stock Exchange combined.

Accepted Answer

A) True 
 B)False

Question 18

Which of the following is not a function of the specialist?

Accepted Answer

A) Assists the Federal Reserve in controlling the money supply 
B) Acts as a broker who handles the limit orders or special orders placed with member brokers 
C) Buys and sells securities in order to stabilize the market 
D) Acts as a dealer in assigned stocks to maintain a fair and orderly market 
E) All of the above are functions of a specialist 
A) Assists the Federal Reserve in controlling the money supply 
B) Acts as a broker who handles the limit orders or special orders placed with member brokers 
C) Buys and sells securities in order to stabilize the market 
D) Acts as a dealer in assigned stocks to maintain a fair and orderly market 
E) All of the above are functions of a specialist

Question 19

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.
-Refer to Exhibit 4.5. What is your dollar return on the investment?

Accepted Answer

A) $384.50 
B) $432.88 
C) -$432.88 
D) -$384.50 
E) -$950.55 
A) $384.50 
B) $432.88 
C) -$432.88 
D) -$384.50 
E) -$950.55

Question 20

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

Accepted Answer

A) Registered trader. 
B) Commission broker. 
C) Registered broker. 
D) Floor broker. 
E) Specialist. 
A) Registered trader. 
B) Commission broker. 
C) Registered broker. 
D) Floor broker. 
E) Specialist.

Exam 4: Organization and Functioning of Securities Markets

All of the following are advantages of secondary markets except

Rule 144A reduced registration documentation requirements for placing securities privately with large institutional investors.

You sell short 100 shares of Hi-Light Corporation when it is trading at $70. Your margin requirement is 50%. Assuming there was no commission and the maintenance margin is 25%, at what stock price would you receive a margin call?

Which of the following is not a characteristic of a good market for goods and services?

A block house is a brokerage firm that buys and sells blocks of stock for institutions.

Specialists provide added liquidity in the Nasdaq market.

In a dealer market trading system shares of stock are sold to the investor with the highest bid price and bought from the seller with the lowest offering price.

A market where prices adjust rapidly to new information is considered to be internally efficient.

Which of the following is not a secondary equity market?

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

A 1994 study concluded dealers were colluding to maintain wide bid/ask spreads by concentrating market quotes in quarters instead of eighths. This study eventually led to new order handling rules that required quotes to be available to the public through:

Informational efficiency is where the cost of acquiring information is very cheap.

Which of the following is not a characteristic of shelf registrations? Shelf registrations:

The over-the-counter market lists more stocks than the New York Stock Exchange and the American Stock Exchange combined.

Which of the following is not a function of the specialist?

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

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Security-Market Indexes

Efficient Capital Markets

An Introduction to Portfolio Management

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts, Convertible Securities, and Other Embedded Derivatives

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters