Question 1

If transaction prices are volatile, but long-term prices are stable, this is referred to as price continuity.

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 4.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You decide to sell 100 shares of Davis Industries short when it is selling at its yearly high of $35. Your broker tells you that your margin requirement is 55 percent and that the commission on the sale is $15. While you are short, Davis pays a $0.75 per share dividend. At the end of one year you buy your Davis shares (cover your short sale) at $30 and are charged a commission of $15 and a 6 percent interest rate.
-Refer to Exhibit 4.4. What is your rate of return on the investment?

Accepted Answer

A) 10.48% 
B) 12.87% 
C) 13.98% 
D) 15.49% 
E) 18.87% 
A) 10.48% 
B) 12.87% 
C) 13.98% 
D) 15.49% 
E) 18.87%

Question 3

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 paid the full cost of the purchase, what is your rate of return if you sell RossCorp stock?

Accepted Answer

A) 18.08% 
B) 23.51% 
C) 22.32% 
D) 14.96% 
E) 19.28% 
A) 18.08% 
B) 23.51% 
C) 22.32% 
D) 14.96% 
E) 19.28%

Question 4

The basic distinction between a primary and a secondary market is

Accepted Answer

A) proceeds from sales in the primary market go to the current owner of a security; proceeds in secondary market go to the original owner. 
B) primary markets involve direct dealings within regional exchanges. 
C) only new securities are sold in the primary market; only outstanding securities are bought and sold in the secondary market. 
D) primary markets deal exclusively in bonds; secondary markets deal primarily in common stock. 
E) None of the above. 
A) proceeds from sales in the primary market go to the current owner of a security; proceeds in secondary market go to the original owner. 
B) primary markets involve direct dealings within regional exchanges. 
C) only new securities are sold in the primary market; only outstanding securities are bought and sold in the secondary market. 
D) primary markets deal exclusively in bonds; secondary markets deal primarily in common stock. 
E) None of the above.

Question 5

Exhibit 4.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
You decide to sell 100 shares of Davis Industries short when it is selling at its yearly high of $35. Your broker tells you that your margin requirement is 55 percent and that the commission on the sale is $15. While you are short, Davis pays a $0.75 per share dividend. At the end of one year you buy your Davis shares (cover your short sale) at $30 and are charged a commission of $15 and a 6 percent interest rate.
-Refer to Exhibit 4.4. What is your dollar return on the investment?

Accepted Answer

A) $130.50 
B) $300.50 
C) $100.00 
D) $1,773.75 
E) $3,500.00 
A) $130.50 
B) $300.50 
C) $100.00 
D) $1,773.75 
E) $3,500.00

Question 6

It is required by law that a stock market must have a physical location.

Accepted Answer

A) True 
 B)False

Question 7

The Nasdaq National Market System is an order driven market.

Accepted Answer

A) True 
 B)False

Question 8

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 rate of return on the investment?

Accepted Answer

A) 10.48% 
B) 12.87% 
C) -13.98% 
D) -24.49% 
E) -15.05% 
A) 10.48% 
B) 12.87% 
C) -13.98% 
D) -24.49% 
E) -15.05%

Question 9

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?

Accepted Answer

A) -30.0% 
B) 16.7% 
C) 50.0% 
D) 66.7% 
E) 150.0% 
A) -30.0% 
B) 16.7% 
C) 50.0% 
D) 66.7% 
E) 150.0%

Question 10

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

Accepted Answer

A) True 
 B)False

Question 11

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 12

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 13

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

Accepted Answer

A) True 
 B)False

Question 14

The NYSE has dominated the other U.S. exchanges in trading volume.

Accepted Answer

A) True 
 B)False

Question 15

In recent years there has been a trend toward the consolidation of existing exchanges in developed markets, such as London, Frankfurt and Paris.

Accepted Answer

A) True 
 B)False

Question 16

Suppose you buy a round lot of DG Solutions stock on 60% margin when it is selling at $55 a share. The broker charges a 10 percent annual interest rate and commissions are 3 percent of the total stock value on both the purchase and the sale. If at year end you receive a $1.10 per share dividend and sell the stock for 55 5/8, what is your rate of return on the investment?

Accepted Answer

A) -10.38% 
B) -12.84% 
C) -10.95% 
D) 21.84% 
E) 28.38% 
A) -10.38% 
B) -12.84% 
C) -10.95% 
D) 21.84% 
E) 28.38%

Question 17

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 18

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

Accepted Answer

A) True 
 B)False

Question 19

When a market is externally efficient, it means that

Accepted Answer

A) Timely and accurate information is available 
B) The market is liquid 
C) Transaction costs are low 
D) Prices adjust rapidly to new information 
E) The number of buyers and sellers are the same 
A) Timely and accurate information is available 
B) The market is liquid 
C) Transaction costs are low 
D) Prices adjust rapidly to new information 
E) The number of buyers and sellers are the same

Question 20

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

Accepted Answer

A) True 
 B)False

If transaction prices are volatile, but long-term prices are stable, this is referred to as price continuity.

The basic distinction between a primary and a secondary market is

It is required by law that a stock market must have a physical location.

The Nasdaq National Market System is an order driven market.

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?

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

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?

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

The NYSE has dominated the other U.S. exchanges in trading volume.

In recent years there has been a trend toward the consolidation of existing exchanges in developed markets, such as London, Frankfurt and Paris.

All of the following are advantages of secondary markets except

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

When a market is externally efficient, it means that

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

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

Exam 4: Organization and Functioning of Securities Markets

If transaction prices are volatile, but long-term prices are stable, this is referred to as price continuity.

The basic distinction between a primary and a secondary market is

It is required by law that a stock market must have a physical location.

The Nasdaq National Market System is an order driven market.

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?

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

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?

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

The NYSE has dominated the other U.S. exchanges in trading volume.

In recent years there has been a trend toward the consolidation of existing exchanges in developed markets, such as London, Frankfurt and Paris.

All of the following are advantages of secondary markets except

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

When a market is externally efficient, it means that

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

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