Question 1

Assume you purchased 200 shares of XYZ 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

E

Question 2

The following statements regarding the specialist are true:

Accepted Answer

All three statements A, B, and C are true for specialists. They maintain a book of limit orders, earn income from commissions and spreads, and stand ready to trade at quoted bid and ask prices. Statement D is incorrect as specialists can trade in their own accounts, but they must follow strict rules and regulations to prevent any conflicts of interest.

Question 3

Assume you sold short 200 shares of common stock at $60 per share.The initial margin is 50%.What would be the minimum margin if a margin call is made at a stock price of $70?

Accepted Answer

The correct answer is A because the minimum margin is 29%. The initial margin is 50%, which means that the investor must have $30,000 in their account to sell short 200 shares of stock at $60 per share. If the stock price rises to $70 per share, the investor will have a loss of $2,000. This will reduce their margin to 29%.

Question 4

The cost of buying and selling a stock consists of __________.

Accepted Answer

The cost of buying and selling a stock includes broker's commissions, the dealer's bid-asked spread, and any price concessions an investor may need to make.

Question 5

Investment bankers

Accepted Answer

Investment bankers act as intermediaries between issuers of stocks and investors and also act as advisors to companies in helping them analyze their financial needs and find buyers for newly issued securities. However, they do not accept deposits from savers and lend them out to companies.

Question 6

A purchase of a new issue of stock takes place

Accepted Answer

A purchase of a new issue of stock takes place in the primary market, usually with the assistance of an investment banker or dealer.

Question 7

You purchased 100 shares of ABC common stock on margin at $70 per share.Assume the initial margin is 50% and the minimum 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

The answer of You purchased 100 shares of ABC common...

Question 8

Initial margin requirements are determined by

Accepted Answer

The answer of Initial margin requirements are determined by
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Question 9

You purchased XYZ stock at $50 per share.The stock is currently selling at $65.Your gains may be protected by placing a __________

Accepted Answer

A limit-sell order allows you to set a minimum price at which you are willing to sell the stock, thus protecting your gains if the stock price falls.

Question 10

Which one of the following statements regarding orders is false?

Accepted Answer

All the statements A, B, C, and D are true regarding orders, so none of them is false.

Question 11

Assume you purchased 100 shares of common stock at $50 per share.The initial margin is 40%.Your investment was

Accepted Answer

The initial margin is 40%, which means you only paid for 40% of the stock and borrowed the remaining 60% from the broker.

So, the amount you paid is: 
40% * ($50 * 100) = $2,000

Therefore, the correct answer is C) $2000.

Question 12

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

Accepted Answer

The answer of You sold short 200 shares of common...

Question 13

You purchased 100 shares of common stock on margin at $45 per share.Assume the initial margin is 50% and the stock pays no dividend.What would the minimum margin be if a margin call is made at a stock price of $30? Ignore interest on margin.

Accepted Answer

The minimum margin is calculated as (Equity/Stock Value). Initially, you invested $2250 (50% of $4500). At $30 per share, the stock value is $3000. The equity is $3000 - $2250 = $750. The minimum margin is $750/$3000 = 0.25.

Question 14

Restrictions on trading involving insider information apply to the following except

Accepted Answer

Restrictions on trading involving insider information apply not only to corporate officers and directors, but also to their relatives and major stockholders. Therefore, the correct answer is E, none of these.

Question 15

Which of the following statement(s)is(are)true?

Accepted Answer

The answer of Which of the following statement(s)is(are)true?
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Question 16

The use of the Internet to trade and underwrite securities

Accepted Answer

The passage states that the use of the Internet to trade and underwrite securities is expected to grow quickly.

Answer: E
 The passage states that it is not regulated by either the NYSE or the NASD, so option E is incorrect. Therefore, there is no correct choice for this option.

Question 17

You purchased 300 shares of common stock on margin for $60 per share.The initial margin is 60% and the stock pays no dividend.What would your rate of return be if you sell the stock at $45 per share? Ignore interest on margin.

Accepted Answer

The total cost of purchasing the 300 shares is calculated by multiplying the price per share by the number of shares and the initial margin requirement:
Total cost = $60 x 300 x 0.6 = $10,800

If the stock is sold at $45 per share, the total selling price will be:
Total selling price = $45 x 300 = $13,500

The total amount borrowed on margin is:
Total amount borrowed = $60 x 300 x 0.4 = $7,200

Therefore, the total profit or loss is calculated as follows:
Profit or loss = Total selling price - Total cost - Total amount borrowed
Profit or loss = $13,500 - $10,800 - $7,200 = -$4,500

The rate of return is calculated by dividing the profit or loss by the initial cost:
Rate of return = (Profit or loss / Initial cost) x 100%
Rate of return = (-$4,500 / $10,800) x 100% = -41.67%

Therefore, the best choice is D: -42%.

Question 18

You sold ABC stock short at $80 per share.Your losses could be minimized by placing a __________:

Accepted Answer

A stop-buy order can be used to limit losses by automatically triggering a purchase of ABC stock to cover the short position if the stock rises above a predetermined price (stop price). This can limit losses because it ensures that the short position is covered before the stock price rises too high. Option A) limit-sell order, however, is not a good choice because it would result in further losses if the stock price continued to rise instead of falling back down. Option B) limit-buy order and D) day-order do not provide any protection against losses.

Question 19

In a "best-efforts" basis

Accepted Answer

"Best-efforts" means that the investment banker is not obligated to sell all of the shares of the company's stock, but rather agrees to use their best efforts to help the firm sell the stock at a favorable price. This means that the investment banker will not purchase the stock from the company and resell it, as in option A, but instead will try to find buyers for the stock on behalf of the company. Option C is partially correct, as the investment banker will be looking for the best marketing strategy, but this alone does not encompass the full meaning of "best-efforts." Option D includes both B and C but also includes option A, which is incorrect. Therefore, the best answer is B.

Question 20

The secondary market consists of

Accepted Answer

The secondary market consists of transactions in both the stock exchange (ME) and the over-the-counter (OTC) market. Transactions through investment bankers are part of the primary market, which involves the issuance of securities by companies or governments. Therefore, only choices A and B are valid options for the secondary market. Therefore, the best choice is D as it includes both A and B.

Quiz 3: Securities Markets