Question 1

A round lot refers to the purchase of 100 shares of stock in the same company in a single transaction.

Accepted Answer

A round lot is commonly understood to be the purchase of 100 shares of the same stock in a single transaction.

Question 2

When you place a limit order,it means you are willing to buy or sell the stock at the best price available.

Accepted Answer

When you place a limit order, you specify the price at which you want to buy or sell the stock, and the order will only be executed if the market reaches that specified price. It does not necessarily mean that you are willing to buy or sell at the best price available at the moment.

Question 3

A margin call requires an investor to repay money borrowed from the broker used to purchase the stock.

Accepted Answer

A margin call is triggered when the value of the investor's account falls below a certain level, and the broker requires the investor to add more funds to the account or sell some of the securities to increase the account's value. This is because the broker wants to ensure that they do not lose their own money by lending to the investor. Therefore, the investor would need to repay the borrowed money to the broker in order to satisfy the margin call.

Question 4

Buying stock on margin lowers the overall risk for the investor.

Accepted Answer

Buying stock on margin actually increases the overall risk for the investor. Margin allows investors to borrow money to purchase more shares than they could afford with their own funds, magnifying both gains and losses. If the value of the stock decreases, the investor may not be able to repay the borrowed funds, leading to significant losses.

Question 5

An investor placing a market order with a broker agrees to buy or sell a stock immediately at the best price available.

Accepted Answer

A market order is an instruction given to a broker to buy or sell a stock immediately at the current market price. The investor is not concerned with the specific price of the stock, but just wants to execute the trade as quickly as possible. Therefore, the broker will execute the transaction at the best price available at the time the order is placed.

Question 6

A stock split immediately increases the value of an investor's holdings.

Accepted Answer

A stock split does not increase the total value of an investor's holdings, it simply increases the quantity of shares they own and decreases the price per share proportionally. The overall value of their investment remains the same.

Question 7

Buying on margin means you are borrowing part of the value of the stock purchase from the brokerage firm.

Accepted Answer

Buying on margin involves borrowing money from the brokerage firm to purchase securities, with the securities themselves acting as collateral for the loan. The portion of the purchase that is not financed through the loan is the investor's equity in the position.

Question 8

Corporations and brokers prefer to have stock purchases conducted in round lots of 100 shares.

Accepted Answer

This is true, as it simplifies the buying and selling process and reduces transaction costs. It also allows for better price discovery since orders in multiples of 100 shares are easier to match and execute on the marketplace.

Question 9

Lamont bought a share of stock in the ABC Corporation for $50.When he sold the stock later that year,he received $70.The par value of the stock is $5.Lamont's capital gain is $25.

Accepted Answer

The answer of Lamont bought a share of stock in...

Question 10

Buying on margin is a relatively risk-free way of investing in the stock market.

Accepted Answer

Buying on margin involves borrowing money to purchase stocks, which can magnify both gains and losses. It is not considered a risk-free way of investing in the stock market.

Question 11

Investing in common stock can give an individual the opportunity to participate in the success or failure of a corporation.

Accepted Answer

Common stock represents ownership in a corporation and allows shareholders to share in the company's profits and growth. However, there is also risk involved as the value of the stock can decline if the company does not perform well.

Question 12

Ricardo owns 100 shares of stock in the ABC Corporation that currently sell for $100 per share.ABC just announced a two-for-one stock split for all current stockholders.Ricardo now owns $20,000 worth of stock in the ABC Corporation.

Accepted Answer

The answer of Ricardo owns 100 shares of stock in...

Question 13

When brokers talk about trading round lots,they are referring to 50 shares of stock.

Accepted Answer

Trading round lots refers to a multiple of 100 shares of stock, not 50.

Question 14

If you buy 100 shares of IBM for $120/share,and the margin on your account is 50%,the broker will float you an interest free loan of $6,000,until the price of IBM sufficiently rises to the point where you are willing to sell.You pay the broker back its $6,000,and you enjoy the capital gain.

Accepted Answer

The answer of If you buy 100 shares of IBM...

Question 15

A stock split refers to buying a share of stock at a discounted price if full payment is made at the time of purchase.

Accepted Answer

A stock split actually refers to a process where a company increases the number of its outstanding shares by distributing additional shares to its current shareholders. This results in a decrease in the price per share, but the total value of the shares owned by a shareholder remains the same. There is no discounted price offered for purchasing shares during a stock split.

Question 16

If an individual investor places a limit order at $38 and the stock currently sells for $41 per share,the broker will buy the stock for the investor.

Accepted Answer

A limit order to buy at $38 means the investor is not willing to pay more than $38 for the stock, so if it's currently selling for $41, the broker will not execute the order. The investor may need to adjust the limit price or wait for the stock to decrease in price.

Question 17

The stocks of high quality companies such as Coca-Cola and Microsoft are called blue chip stocks.

Accepted Answer

Blue chip stocks refer to the stocks of high quality and financially stable companies with a long track record of performance and a strong reputation. Companies like Coca-Cola and Microsoft are commonly considered as blue chip stocks.

Question 18

If a company announces a stock split,the investor may receive two or more shares of the company stock,for every one share that he/she holds.

Accepted Answer

This is a correct statement. When a company announces a stock split, the investor may receive two or more shares of the company stock for every one share they hold. For example, if a company announces a 2-for-1 stock split, the investor will receive two shares for every one share they held prior to the split.

Question 19

If you are willing to hold on to your growth stock long enough,at least five years or more,you will realize capital gains.

Accepted Answer

The answer of If you are willing to hold on...

Question 20

Buying stock on margin allows investors to increase the potential rate of return made on a stock investment.

Accepted Answer

Buying stock on margin involves borrowing money from a broker to purchase more shares than the investor could afford with their own funds. This can increase potential gains because the investor is essentially magnifying their exposure to the market. However, it also increases risk and potential losses.

Quiz 19: Using Securities Markets for Financing and Investing Opportunities