Deck 3: Investment Information and Securities Transactions

Question 1

On October 12, Kevin placed a day order to purchase 100 shares of ABC stock at $21 a share. During the day, the shares sold at prices ranging from $21.01 to $22.49. Over the following month the shares sold in a range of $21.60 to $23.05. On December 2, the market declined radically and the price of ABC shares dropped to $19.94. Which one of the following statements is correct concerning Kevin's order?

A) The order was executed at $19.94.
B) The order was executed at $21.01 per share.
C) The order was executed at $22.49.
D) The order was never executed.

Answer 1

D

Question 2

Most brokerage firms will invest surplus cash, dividends and interest received, proceeds from the sale of stock and the like in

A) a non- interest bearing account.
B) certificates of deposit.
C) a money market fund.
D) additional securities of the same type.

Answer 2

C

Question 3

Ryan bought a stock three years ago for $6 a share. Today, June 22, the stock is selling for $72 a share. Ryan is afraid that the price will fall and does not want to lose his profits so he places a stop- loss order to sell at $70. The stock sells between $71 and $75 throughout the remainder of the day on June 22. On the morning of June 23, the stock opens at $9 a share based on rumors of a possible bankruptcy due to inappropriate accounting procedures. Which one of the following statements is true concerning this situation?

A) Ryan still owns his shares of stock since his order was never executed at the $70 price.
B) Ryan's stock was sold for $9 a share causing him to lose most of his profits.
C) Ryan received a call from the specialist asking him what he wanted to do about his order.
D) Ryan was able to sell his stock for $70 a share thereby protecting his profits.

Answer 3

B

Question 4

Which one of the following is considered a financial rather than a general newspaper?

A) The Age.
B) The Herald Sun.
C) The Australian Financial Review.
D) The Australian.

Question 5

Bond yields are

A) quoted as annual rates of return and assume the bond is purchased today at the stated price and sold one year from today.
B) stated as a percentage of the maturity value and assume the bond is held to maturity.
C) stated as an annual rate of return and assume the bond is purchased today and held until maturity.
D) quoted as the average monthly rate of return and assume the bond is purchased today at the quoted price and held for twelve months.

Question 6

An order to sell 300 shares of ABC stock at the best available price is called a

A) fill- or- kill order.
B) market order.
C) stop-loss order.
D) limit order.

Question 7

At 10:45 a.m., Ashley placed a stop- loss order to sell 200 shares of Alpha stock at $43 a share. At 2:15 p.m., the price of Alpha fell to $42.90 and then rose to $43.40 a share by the end of the trading day. Ashley order was executed that day. Ashley would have received a price

A) between $42.90 and $43.40 a share depending upon when her trade executed.
B) equal to the average prices paid by the specialist during that trading day.
C) of $42.90 a share for her stock since her order was already recorded in the specialist's book.
D) of $43.40 a share for her stock since that was the closing price on the day of execution.

Question 8

Averages and indices differ from one another in that an index

A) always moves up before a corresponding average moves up, and always moves down before a corresponding average moves down.
B) measures the current price behaviour of a group of stocks in relation to a base value set at an earlier point in time.
C) is the arithmetic average price behaviour of a group of shares at a given point in time.
D) is of value in- and- of itself, whereas an average must be compared to a historical figure to have any meaning.

Question 9

Which one of the following is the LEAST important when selecting a stockbroker?

A) Getting referrals from personal acquaintances with similar investment objectives.
B) Knowing the stockbroker personally.
C) Considering the services offered and the related costs.
D) Selecting a stockbroker who best understands your investment goals.

Question 10

Assume that the S&P 500 composite stock index is 995.50. This means that

A) the share prices of the shares in the index have risen 995.50 times since 1941.
B) the average share in the index is selling for $99.55.
C) an investor would have to pay $995.50 to purchase one share of each of the shares represented in the index.
D) the market values of the shares in the index increased by a factor of 99.55 since the 1941-1943 base period.

Question 11

Which one of the following statements about limit orders is correct?

A) The trade may be executed only at the limit price or better at any time prior to expiration or cancellation of the order.
B) The execution of the trade will occur prior to the close of trading on the day the trade is placed.
C) The execution will occur at the regular open on the day following the day the trade is placed.
D) The trade will be executed at the market price at the end of the third business day, if not executed previously at the limit price.

Question 12

Angela placed a stop- limit order to sell 100 shares of RST stock at $28 when the market price of RST was $31. Shortly after Angela placed her order, trading on RST was halted due to a pending news announcement. When trading re- opens RST is priced at $24 a share. Within minutes the price of RST began to drop further until it reached $19 a share. Which one of the following statements is correct concerning Angela's stop- limit order to sell?

A) Angela's stock was sold for $28 a share.
B) Angela's stock was sold at a price between $19 and $24 a share.
C) Angela's stock was sold for $24 a share.
D) Angela still owns her 100 shares of stock.

Question 13

Whose responsibility is it to determine if a client can pay for the securities they purchase?

A) The floor broker who places the trade on the floor of the exchange.
B) The dealer who acts as the seller in the trade.
C) The broker in charge of churning.
D) The stockbroker who opens the account for the client.

Question 14

Which one of the following statements is true concerning bonds?

A) Bond yield data is more useful to an investor when compared over time.
B) Bonds with similar characteristics generally have widely disparate bond yields.
C) A bond yield represents only the interest earned on a bond.
D) A bond's yield remains constant even when a bond is sold prior to maturity.

Question 15

An informal, voluntary agreement to solve disputes between an investor and his/her broker by utilising a person to facilitate negotiations between the two parties is called

A) litigation.
B) mediation.
C) binding arbitration.
D) voluntary arbitration.

Question 16

Which one of the following can be considered a negative aspect of online investing?

A) Online trading is available to the average investor.
B) Online investors pay lower costs per trade than investors using a broker.
C) Online trading is fast and efficient.
D) Online investors tend to trade more frequently.

Question 17

Which one of the following statements about stockbrokers is correct?

A) Stockbrokers act as dealers in the securities they trade.
B) Stockbrokers must be licensed by the Australian Securities and Investments Commission.
C) Stockbrokers execute trades on the floor of the Australian Securities Exchange on behalf of account executives.
D) Stockbrokers are regulated by financial consultants.

Question 18

A fill- or- kill order will be

A) in effect until cancelled by the customer who placed the order.
B) executed immediately upon order arrival on the floor of the exchange.
C) cancelled at the end of the trading day if not executed by that time.
D) cancelled if not immediately executed at the stated price or better.

Question 19

Share market averages reflect the arithmetic average price behaviour of a group of shares

A) relative to other indices.
B) relative to a base value set at an earlier point in time.
C) at a given point in time.
D) relative to a base price of 100.

Question 20

The Dow Jones Industrial Average (DJIA) consists of 30 shares whose price behaviour

A) broadly reflects the overall price behaviour of the stock market.
B) reflects the changes in value of manufacturing shares only.
C) leads the movements in the general economy by one to two weeks.
D) typically has little correlation with the rest of the stock market.

Question 21

Share market averages and indices are commonly used to measure the

A) specific behaviour of alternative investments.
B) specific behaviour of companies.
C) general behaviour of share prices.
D) specific behaviour of the economy.

Question 22

Excessively trading a customers account to increase a stockbrokers commission income is

A) an acceptable method of timing the market to increase rates of return.
B) called churning which is acceptable by the securities industry.
C) called churning which is unethical.
D) permitted provided that the customer does not object.

Question 23

Both the Dow Jones Industrial Average and the Standard and Poor's 500 Index are constructed to reflect the value of shares in large, mid- size and smaller companies.

Question 24

A margin account

A) can be opened by any investor who wants to purchase securities by charging them to his/her credit card.
B) is permitted only in wrap accounts.
C) allows an investor to borrow a portion of the purchase price at a reasonable rate of interest.
D) allows an investor to borrow one hundred percent of the cost of the securities purchased.

Question 25

Investors who are aware of current economic, political, and market events tend to make better investment decisions.

Question 26

A brokerage firm which provides analyst reports, investment advice and information as well as online brokerage services is called a(n)

A) premium discount broker.
B) electronic broker.
C) basic discount broker.
D) full- service broker.

Question 27

Which of the following is published yearly by publicly- held corporations and provided free to their shareholders and other investors?

A) Back- office reports.
B) Brokerage reports.
C) Annual reports.
D) Red herrings.

Question 28

The Standard & Poor's indices are all based on market values which consider the number of shares outstanding.

Question 29

Many brokerage firms require that disputes between individual investors and brokers be settled through arbitration.

Question 30

An individual investor who wishes to borrow money to buy stocks must open a

A) margin account.
B) signature account.
C) joint account.
D) custodial account.

Question 31

Placing your trades with a discount broker can save you as much as 80% of the commission charged by a full- service broker.

Question 32

A stop- loss order is activated once the stock reaches the specified price.

Question 33

Analytical information would include such information as estimates of growth in sales and future earnings.

Question 34

Descriptive information might include estimates of future demand for a company's products and future stock prices.

Question 35

The documents signed when a customer opens a brokerage account

A) establish a legal relationship between the customer and the brokerage firm.
B) may be signed by a minor child provided that the money being invested belongs to the child.
C) serve as an informal relationship between the customer and the stockbroker.
D) limit the customer to dealing only through that brokerage firm.

Question 36

Charting is the technique of

A) monitoring a stock based on the underlying economic conditions.
B) plotting the performance of a security over time.
C) sorting through databases of securities to select one based on certain parameters.
D) determining the amount of money that must be saved based on a given financial goal.

Question 37

A person can become a Certified Financial Planner merely by filling out an application and paying an annual fee.

Question 38

ABC's share is now selling for $57 per share. Kim wants to buy 100 shares but only if she can do so at $55 or less. She should place a(n)

A) stop order.
B) limit order.
C) odd- lot order.
D) market order.

Question 39

Mike bought 200 shares of EG stock two years ago at $16 per share. The shares have traded in a range of $21 to $44 a share over the past year. EG is now selling for $43.60 a share. EG announces its earnings today and Mike feels the shares could go to $60 on good news or fall to $30 on bad. To protect his profits, the most appropriate order for him to place is

A) a stop- loss order at $42.
B) market order to sell immediately.
C) a stop- limit order to sell at $45.
D) a limit sell order at $60.00.

Question 40

An index measures the current value of a group of shares in relation to a base value established previously.

Question 41

Trading shares is much faster and less complicated if an individual investor has possession of the actual stock certificates.

Question 42

If the market moves rapidly, an online trader may experience difficulty placing a trade.

Question 43

The basic function of stockbrokers is to execute client orders at the best possible price.

Question 44

Commission structures vary with the type of security being traded, the type of broker involved and the size of the order.

Question 45

A limit order is an order to buy or sell at the limit price or less.

Question 46

Small investors normally have a negotiated commission schedule while large investors benefit from a fixed- commission schedule.

Question 47

You can utilise the Internet to develop financial plans and goals, analyse and select individual investments and organise your portfolio.

Question 48

Investing online is usually less expensive than traditional methods.

Question 49

An individual can sort shares by dividend rates, growth rates, and price/earnings ratios using screening tools on the Internet.

Question 50

Most brokers charge higher commissions for online trades than for telephone transactions.

Question 51

Investors can usually find the financial statement of a firm on the firm's website.

Question 52

Many day traders are also margin traders.

Question 53

Brokerage firms are not allowed to make specific buy or sell recommendations to their clients.

Question 54

Current price information on shares of a company's stock is often accompanied by statistics on the recent price behaviour of that share.

Question 55

The Dow Jones Industrial Average and the Standard & Poor's Industrial Index have a number of similarities and differences. Discuss at least two major similarities and major differences between these two market indicators.

Question 56

Traders who hold shares for less than a full day can reduce the tax burden on their profits.

Question 57

Investment clubs are legal partnerships.

Question 58

What is the advantage of charting the price of a security over a period of time?

Question 59

Chartered Financial Analysts and Certified Financial Planners must pass a rigorous series of exams, as well as meet educational and experience requirements.

Question 60

When placing an order online, an individual investor should always double check the share symbol prior to submitting the order.

Question 61

What does it mean to say a bond has a yield-to-maturity of 6%?