Question 1

Which one of the following statements is correct?

Accepted Answer

A)  The call money rate is the rate of interest brokerage firms charge on margin loans.
B)  The spread is the fee a deep-discount broker charges to execute a trade.
C)  The percentage of a purchase paid for with borrowed funds is referred to as the margin.
D)  A margin loan is treated as an asset on an account balance sheet.
E)  Margin is equal to account equity divided by the value of the securities owned.

Question 2

Briefly describe the NYSE up-tick rule,the rationale for it and the current status of the rule.

Accepted Answer

The New York Stock Exchange Uptick Rule ...

Question 3

If you benefit when a security decreases in value,you have a _____ position in the security.

Accepted Answer

A)  long
B)  margined
C)  short
D)  covered
E)  wrapped

Question 4

Kate just purchased $7,000 worth of stock.She paid $5,000 in cash and borrowed $2,000.In this example,the term margin refers to:

Accepted Answer

A)  the total amount of the purchase.
B)  the percentage of the purchase that was paid in cash.
C)  the percentage of the purchase paid with borrowed funds.
D)  any future increase in the value of the stock.
E)  any future decrease in the value of the stock.

Question 5

Theresa has a margin account with a 60 percent initial margin requirement and a 35 percent maintenance margin.What is the maximum dollar amount of stock she can purchase if her cash balance in the account is $35,300?

Accepted Answer

A)  $19,140.00
B)  $31,900.00
C)  $44,093.33
D)  $58,833.33
E)  $91,142.86

Question 6

Wythe is trying to decide whether he wants to purchase shares in General Motors,Ford,or Honda,all of which are auto manufacturers.Wythe is making a(n) _____ decision.

Accepted Answer

A)  security selection
B)  tax-advantaged
C)  risk aversion
D)  active strategy
E)  asset allocation

Question 7

Stacy purchased 400 shares of stock for $38 a share.She sold those shares six months later for $34 a share.The initial margin requirement is 80 percent and the maintenance margin is 40 percent. Ignore margin interest and trading costs.If she purchased the shares for cash her holding period return would be _____ percent as compared to _____ percent if she had used margin.

Accepted Answer

A)  -10.12; -12.84
B)  -10.53; -13.16
C)  -11.63; -14.30
D)  -11.63; -14.54
E)  -12.27; -15.82

Question 8

Market timing is the:

Accepted Answer

A)  placing of an order within the last half-hour of trading for a day.
B)  period of time between the placement of a short sale and the covering of that sale.
C)  buying and selling of securities in anticipation of the overall direction of the market.
D)  staggering of either buy or sell orders to mask the total size of a large transaction.
E)  placing of trades within the last half-hour prior to the commencement of daily trading.

Question 9

If you opt to purchase shares of stock on margin rather than with cash,you will:

Accepted Answer

A)  decrease your maximum potential rate of return.
B)  increase your maximum potential rate of return.
C)  guarantee yourself a profit.
D)  eliminate any potential profit.
E)  have equal rates of return regardless of how the purchase is made.

Question 10

A Roth IRA:

Accepted Answer

A)  is a form of "tax-deferred" account
B)  funds are taxed at the time you begin withdrawals
C)  are well-suited to investors nearing retirement
D)  invests after-tax dollars
E)  is the type of account offered by most employers

Question 11

When your equity position in a security is less than the required amount,your brokerage firm will issue a:

Accepted Answer

A)  margin call.
B)  margin certificate.
C)  cash certificate.
D)  limit order.
E)  leverage call.

Question 12

This morning,Josh sold 800 shares of stock that he did not own.This sale is referred to as a:

Accepted Answer

A)  margin sale.
B)  long position.
C)  wrap trade.
D)  hypothecated sale.
E)  short sale.

Question 13

If you ignore a margin call,your broker:

Accepted Answer

A)  will seize all the assets in your account.
B)  will close your account.
C)  may place a short sale on your behalf to cover the amount of the call.
D)  may sell some of your securities to repay the margin loan.
E)  will increase both your margin loan and the rate of interest on that loan.

Question 14

Five months ago,you purchased 400 shares of stock on margin.The initial margin requirement on your account is 60 percent and the maintenance margin is 30 percent.The call money rate is 4.8 percent and you pay 1.85 percent above that rate.The purchase price was $16 a share.Today,you sold these shares for $18.00 each.What is your annualized rate of return?

Accepted Answer

A)  26.15 percent
B)  33.35 percent
C)  42.77 percent
D)  56.87 percent
E)  64.64 percent

Question 15

Matt short sold 600 shares of stock at $10.50 a share.The initial margin is 80 percent and the maintenance margin is 50 percent.The stock is currently selling for $6.80 a share.What is Matt's account equity at this time? Ignore margin interest.

Accepted Answer

A)  $3,070
B)  $5,590
C)  $7,260
D)  $9,950
E)  $11,510

Question 16

You just sold 1,200 shares of stock short at a price per share of $13.50.The initial margin requirement is 60 percent and the maintenance margin is 30 percent.What is your initial equity position?

Accepted Answer

A)  $6,480
B)  $7,520
C)  $9,720
D)  $10,520
E)  $16,200

Question 17

An investor who has a resource constraint:

Accepted Answer

A)  pays no income taxes.
B)  has insufficient funds to purchase a security.
C)  has a relatively high marginal tax rate.
D)  has only one source of income.
E)  will only invest in socially acceptable securities.

Question 18

A brokerage account in which purchases can be made using credit is referred to as which type of account?

Accepted Answer

A)  clearing
B)  funds available
C)  cash
D)  call
E)  margin

Question 19

You short sold 600 shares of a stock at $48 a share.The initial margin requirement is 60 percent and the maintenance margin is 30 percent.What is the amount of your total liability for this transaction as initially shown on your account balance sheet?

Accepted Answer

A)  $8,640
B)  $17,280
C)  $22,210
D)  $28,800
E)  $37,440

Question 20

You are having a discussion with Kate when she mentions that she just initiated a short position on ABC stock.Given that statement,what do you know about Kate's future outlook for ABC stock?

Accepted Answer

A short position provides a po...

Exam 2: The Investment Process

Wythe is trying to decide whether he wants to purchase shares in General Motors,Ford,or Honda,all of which are auto manufacturers.Wythe is making a(n) _____ decision.

Correct Answer
verified

If you opt to purchase shares of stock on margin rather than with cash,you will:

Correct Answer
verified

A Roth IRA:

Correct Answer
verified

If you ignore a margin call,your broker:

Correct Answer
verified

Market timing is the:

Correct Answer
verified

You short sold 600 shares of a stock at $48 a share.The initial margin requirement is 60 percent and the maintenance margin is 30 percent.What is the amount of your total liability for this transaction as initially shown on your account balance sheet?

Correct Answer
verified

An investor who has a resource constraint:

Correct Answer
verified

Kate just purchased $7,000 worth of stock.She paid $5,000 in cash and borrowed $2,000.In this example,the term margin refers to:

Correct Answer
verified

Correct Answer
verified

Which one of the following statements is correct?

Correct Answer
verified

If you benefit when a security decreases in value,you have a _____ position in the security.

Correct Answer
verified

When your equity position in a security is less than the required amount,your brokerage firm will issue a:

Correct Answer
verified

Theresa has a margin account with a 60 percent initial margin requirement and a 35 percent maintenance margin.What is the maximum dollar amount of stock she can purchase if her cash balance in the account is $35,300?

Correct Answer
verified

This morning,Josh sold 800 shares of stock that he did not own.This sale is referred to as a:

Correct Answer
verified

You just sold 1,200 shares of stock short at a price per share of $13.50.The initial margin requirement is 60 percent and the maintenance margin is 30 percent.What is your initial equity position?

Correct Answer
verified

Correct Answer
verified

You are having a discussion with Kate when she mentions that she just initiated a short position on ABC stock.Given that statement,what do you know about Kate's future outlook for ABC stock?

Correct Answer
verified
A short position provides a po...
View Answer

Briefly describe the NYSE up-tick rule,the rationale for it and the current status of the rule.

Correct Answer
verified
The New York Stock Exchange Uptick Rule ...
View Answer

Matt short sold 600 shares of stock at $10.50 a share.The initial margin is 80 percent and the maintenance margin is 50 percent.The stock is currently selling for $6.80 a share.What is Matt's account equity at this time? Ignore margin interest.

Correct Answer
verified

A brokerage account in which purchases can be made using credit is referred to as which type of account?

Correct Answer
verified

Exam 2: The Investment Process

Wythe is trying to decide whether he wants to purchase shares in General Motors,Ford,or Honda,all of which are auto manufacturers.Wythe is making a(n) _____ decision.

Correct AnswerverifiedShow Answer

If you opt to purchase shares of stock on margin rather than with cash,you will:

Correct AnswerverifiedShow Answer

A Roth IRA:

Correct AnswerverifiedShow Answer

If you ignore a margin call,your broker:

Correct AnswerverifiedShow Answer

Market timing is the:

Correct AnswerverifiedShow Answer

You short sold 600 shares of a stock at $48 a share.The initial margin requirement is 60 percent and the maintenance margin is 30 percent.What is the amount of your total liability for this transaction as initially shown on your account balance sheet?

Correct AnswerverifiedShow Answer

An investor who has a resource constraint:

Correct AnswerverifiedShow Answer

Kate just purchased $7,000 worth of stock.She paid $5,000 in cash and borrowed $2,000.In this example,the term margin refers to:

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Which one of the following statements is correct?

Correct AnswerverifiedShow Answer

If you benefit when a security decreases in value,you have a _____ position in the security.

Correct AnswerverifiedShow Answer

When your equity position in a security is less than the required amount,your brokerage firm will issue a:

Correct AnswerverifiedShow Answer

Theresa has a margin account with a 60 percent initial margin requirement and a 35 percent maintenance margin.What is the maximum dollar amount of stock she can purchase if her cash balance in the account is $35,300?

Correct AnswerverifiedShow Answer

This morning,Josh sold 800 shares of stock that he did not own.This sale is referred to as a:

Correct AnswerverifiedShow Answer

You just sold 1,200 shares of stock short at a price per share of $13.50.The initial margin requirement is 60 percent and the maintenance margin is 30 percent.What is your initial equity position?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

You are having a discussion with Kate when she mentions that she just initiated a short position on ABC stock.Given that statement,what do you know about Kate's future outlook for ABC stock?

Correct AnswerverifiedA short position provides a po...View AnswerShow Answer

Briefly describe the NYSE up-tick rule,the rationale for it and the current status of the rule.

Correct AnswerverifiedThe New York Stock Exchange Uptick Rule ...View AnswerShow Answer

Matt short sold 600 shares of stock at $10.50 a share.The initial margin is 80 percent and the maintenance margin is 50 percent.The stock is currently selling for $6.80 a share.What is Matt's account equity at this time? Ignore margin interest.

Correct AnswerverifiedShow Answer

A brokerage account in which purchases can be made using credit is referred to as which type of account?

Correct AnswerverifiedShow Answer

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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
verified
A short position provides a po...
View Answer

Correct Answer
verified
The New York Stock Exchange Uptick Rule ...
View Answer

Correct Answer
verified

Correct Answer
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