Question 1

Assume you sell short 100 shares of common stock at $45 per share, with initial margin at 50%. What would be your rate of return if you repurchase the stock at $40 per share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction.

Accepted Answer

A)  20.03% 
B)  25.67% 
C)  22.22% 
D)  77.46%

Question 2

You sold short 200 shares of common stock at $60 per share. The initial margin is 60%. Your initial investment was

Accepted Answer

A)  $4,800. 
B)  $12,000. 
C)  $5,600. 
D)  $7,200.

Question 3

You purchased 1,000 shares of common stock on margin at $30 per share. Assume the initial margin is 50%, and the stock pays no dividend. What would the maintenance margin be if a margin call is made at a stock price of $24? Ignore interest on margin.

Accepted Answer

A)  0.33 
B)  0.375 
C)  0.20 
D)  0.23 
E)  0.25

Question 4

You purchased 1000 shares of CSCO common stock on margin at $19 per share. Assume the initial margin is 50%, and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.

Accepted Answer

A)  $12.86 
B)  $15.75 
C)  $19.67 
D)  $13.57

Question 5

Which of the following is not required under the CFA Institute Standards of Professional Conduct?

Accepted Answer

A)  Knowledge of all applicable laws, rules, and regulations 
B)  Disclosure of all personal investments, whether or not they may conflict with a client's investments 
C)  Disclosure of all conflicts to clients and prospects 
D)  Reasonable inquiry into a client's financial situation 
E)  All of the options are required under the CFA Institute standards.

Question 6

One outcome from the SEC investigation of the "Flash Crash of 2010" was

Accepted Answer

A)  a prohibition of short selling. 
B)  higher margin requirements. 
C)  approval of new circuit breakers. 
D)  establishment of electronic communications networks (ECNs). 
E)  passage of the Sarbanes-Oxley Act.

Question 7

You buy 300 shares of Qualitycorp for $30 per share and deposit initial margin of 50%. The next day, Qualitycorp's price drops to $25 per share. What is your actual margin?

Accepted Answer

A)  50% 
B)  40% 
C)  33% 
D)  60% 
E)  25%

Question 8

NASDAQ subscriber levels

Accepted Answer

A)  permit those with the highest level, 3, to "make a market" in the security. 
B)  permit those with a level 2 subscription to receive all bid and ask quotes but not to enter their own quotes. 
C)  permit level 1 subscribers to receive general information about prices. 
D)  include all OTC stocks. 
E)  permit those with the highest level, 3, to "make a market" in the security; permit those with a level 2 subscription to receive all bid and ask quotes but not to enter their own quotes; and permit level 1 subscribers to receive general information about prices.

Question 9

Assume you purchased 200 shares of GE common stock on margin at $70 per share from your broker. If the initial margin is 55%, how much did you borrow from the broker?

Accepted Answer

A)  $6,000 
B)  $4,000 
C)  $7,700 
D)  $7,000 
E)  $6,300

Question 10

Which of the following orders instructs the broker to sell at or below a specified price?

Accepted Answer

A)  Limit-sell order 
B)  Stop-loss 
C)  Limit-buy order 
D)  Stop-buy order 
E)  Market order

Question 11

You purchased 100 shares of common stock on margin for $35 per share. The initial margin is 50%, and the stock pays no dividend. What would your rate of return be if you sell the stock at $42 per share? Ignore interest on margin.

Accepted Answer

A)  28% 
B)  33% 
C)  14% 
D)  40% 
E)  24%

Question 12

Which of the following orders instructs the broker to buy at or below a specified price?

Accepted Answer

A)  Limit-loss order 
B)  Discretionary order 
C)  Limit-buy order 
D)  Stop-buy order 
E)  Market order

Question 13

You purchased 100 shares of IBM common stock on margin at $70 per share. Assume the initial margin is 50%, and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.

Accepted Answer

A)  $21 
B)  $50 
C)  $49 
D)  $80

Question 14

You purchased 100 shares of common stock on margin at $40 per share. Assume the initial margin is 50%, and the stock pays no dividend. What would the maintenance margin be if a margin call is made at a stock price of $25? Ignore interest on margin.

Accepted Answer

A)  0.33 
B)  0.55 
C)  0.20 
D)  0.23 
E)  0.25

Question 15

You sold short 100 shares of common stock at $45 per share. The initial margin is 50%. Your initial investment was

Accepted Answer

A)  $4,800. 
B)  $12,000. 
C)  $2,250. 
D)  $7,200.

Question 16

Investment bankers

Accepted Answer

A)  act as intermediaries between issuers of stocks and investors. 
B)  act as advisors to companies in helping them analyze their financial needs and find buyers for newly-issued securities. 
C)  accept deposits from savers and lend them out to companies. 
D)  act as intermediaries between issuers of stocks and investors and act as advisors to companies in helping them analyze their

Question 17

Restrictions on trading involving insider information apply to the following, except

Accepted Answer

A)  corporate officers. 
B)  corporate directors. 
C)  major stockholders. 
D)  All of the individuals. 
E)  None of the options.

Question 18

In a "firm commitment," the investment banker

Accepted Answer

A)  buys the stock from the company and resells the issue to the public. 
B)  agrees to help the firm sell the stock at a favorable price. 
C)  finds the best marketing arrangement for the investment-banking firm. 
D)  agrees to help the firm sell the stock at a favorable price and finds the best marketing arrangement for the investment-banking firm.

Question 19

You sell short 100 shares of Loser Co. at a market price of $45 per share. Your maximum possible loss is

Accepted Answer

A)  $4,500. 
B)  unlimited. 
C)  zero. 
D)  $9,000. 
E)  Cannot be determined from the information given.

Question 20

Which one of the following statements regarding orders is false?

Accepted Answer

A)  A market order is simply an order to buy or sell a stock immediately at the prevailing market price. 
B)  A limit-sell order is where investors specify prices at which they are willing to sell a security. 
C)  If stock ABC is selling at $50, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $45. 
D)  A market order is an order to buy or sell a stock on a specific exchange (market).

Exam 3: How Securities Are Traded