Question 1

Margin accounts are mostly used by:

Accepted Answer

A) traders who think their long-run returns will be greater than the cost of borrowing. 
B) speculators who think their long-run returns will be greater than the cost of borrowing. 
C) investors who think their long-run returns will be greater than the cost of borrowing. 
D) All of the above

Question 2

Companies having the greatest impact on the computation of the Dow Jones Averages and the Standard & Poor's Indexes have the ____________ and the ____________, respectively.

Accepted Answer

A) highest price; highest total market value 
B) highest total market value; highest price 
C) highest price; lowest liquidity 
D) greatest number of shares outstanding; highest price

Question 3

The NYSE sets margin requirements.

Accepted Answer

A) True 
 B)False

Question 4

Long-term capital gains are taxed at a higher tax rate than dividends.

Accepted Answer

A) True 
 B)False

Question 5

A stop order is similar to a limit order, except that the order turns into a market order once the stop price is hit.

Accepted Answer

A) True 
 B)False

Question 6

An investor who is in a 33% tax bracket for normal (ordinary) income buys a stock for $5,000 and sells it for $9,000. How much will her tax obligation be if she holds the stock for:
(a) 6 months?
(b) 14 months?

Accepted Answer

The answer of An investor who is in a 33%...

Question 7

The indexes of The New York Stock Exchange, American Exchange, and NASDAQ are all price-weighted.

Accepted Answer

A) True 
 B)False

Question 8

The Value Line Average is an equal-weighted index.

Accepted Answer

A) True 
 B)False

Question 9

Assume the following five companies are used in computing an index (there have been no stock splits during this time). $\begin{array}{lrrr}
&&\text { Base Period }&\text { Current Period }\
&\text { Shares} &\text { January 1, 1977 }&\text { December 31,  2004}\
\underline{\text {Company}}&\underline{\text { Outstanding }} & \underline{\text { Market Price }} & \underline{\text { Market Price }}\
\text { A } & 2,000 & \$ 2.00 & \$ 14.00 \
\text { B } & 6,000 & 6.00 & 18.00 \
\text { C } & 5,000 & 9.00 & 23.00 \
\text { D } & 8,000 & 10.00 & 5.00 \
\text { E } & 1,000 & 13.00 & 40.00
\end{array}$ (a) If the index is price-weighted, what will be the value of the index on Dec. 31, 2004?
(b) Using the same data from the above table, determine the index value if the index is calculated on a value-weighted basis.

Accepted Answer

The answer of Assume the following five companies are used...

Question 10

Margin percentages are set by the Board of Governors of the Federal Reserve System.

Accepted Answer

A) True 
 B)False

Question 11

The amount of taxes paid, divided by taxable income, is called:

Accepted Answer

A) the marginal tax rate. 
B) the average tax rate. 
C) the implied tax rate. 
D) None of the above

Question 12

If an investor is in a 34% tax bracket and has held a stock for two years, the applicable tax rate that will apply to dividends is:

Accepted Answer

A) 15%. 
B) 20%. 
C) 28%. 
D) 34%.

Question 13

Good till canceled (GTC) orders expire automatically after a set period of time.

Accepted Answer

A) True 
 B)False

Question 14

An investor is in a 35% tax bracket for normal (ordinary) income. During the course of the year, he received $5,000 in dividends and had $15,000 capital gains on stock he had held for 19 months. How much will his total tax be on this investment-related income?

Accepted Answer

The answer of An investor is in a 35% tax...

Question 15

The Standard & Poor's Midcap Index is composed of 500 middle-sized firms.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following are features of margin accounts?

Accepted Answer

A) They leverage returns (i.e., magnify the size of a gain or loss) 
B) You must put up part of the purchase price in cash or other securities 
C) Purchased securities are not delivered to the investor 
D) The percentage of the total cost the investor must pay is set by the Federal Reserve Board 
E) All of the above are features

Question 17

You are said to be long in a security if you purchase the security.

Accepted Answer

A) True 
 B)False

Question 18

You sell 100 shares of PGD short at a price of $50 per share. How much is your initial margin, given margin requirements of 40%? If the stock declines to $30 per share, what is your percentage gain or loss on the initial equity?

Accepted Answer

The answer of You sell 100 shares of PGD short...

Question 19

Securities must be kept in the street name of the brokerage if a margin account is used.

Accepted Answer

A) True 
 B)False

Question 20

The margin requirement is used in selling stock.

Accepted Answer

A) True 
 B)False

Exam 3: Participating in the Market

Margin accounts are mostly used by:

Companies having the greatest impact on the computation of the Dow Jones Averages and the Standard & Poor's Indexes have the and the , respectively.

The NYSE sets margin requirements.

Long-term capital gains are taxed at a higher tax rate than dividends.

A stop order is similar to a limit order, except that the order turns into a market order once the stop price is hit.

An investor who is in a 33% tax bracket for normal (ordinary) income buys a stock for $5,000 and sells it for $9,000. How much will her tax obligation be if she holds the stock for: (a) 6 months? (b) 14 months?

The indexes of The New York Stock Exchange, American Exchange, and NASDAQ are all price-weighted.

The Value Line Average is an equal-weighted index.

Margin percentages are set by the Board of Governors of the Federal Reserve System.

The amount of taxes paid, divided by taxable income, is called:

If an investor is in a 34% tax bracket and has held a stock for two years, the applicable tax rate that will apply to dividends is:

Good till canceled (GTC) orders expire automatically after a set period of time.

An investor is in a 35% tax bracket for normal (ordinary) income. During the course of the year, he received $5,000 in dividends and had $15,000 capital gains on stock he had held for 19 months. How much will his total tax be on this investment-related income?

The Standard & Poor's Midcap Index is composed of 500 middle-sized firms.

Which of the following are features of margin accounts?

You are said to be long in a security if you purchase the security.

You sell 100 shares of PGD short at a price of $50 per share. How much is your initial margin, given margin requirements of 40%? If the stock declines to $30 per share, what is your percentage gain or loss on the initial equity?

Securities must be kept in the street name of the brokerage if a margin account is used.

The margin requirement is used in selling stock.