Question 1

If John executes a buy order to take place when the stock price of ABC Ltd.falls to $10,it is a(n)

Accepted Answer

The answer of If John executes a buy order to...

Question 2

You have bought 1000 shares on margin at $50 per share,putting up $25 000.The stock price has increased to $65.If the margin rate is 50 percent,how much more will the broker lend you?

Accepted Answer

With a margin rate of 50%, the initial margin requirement would be 50% of the total purchase price, which is 50% x $50 x 1000 = $25,000. Since the stock has increased to $65 per share, the total value of the shares is now $65 x 1000 = $65,000.
Based on the initial margin of $25,000, the investor has a remaining equity of $40,000 ($65,000 - $25,000), which is greater than the margin requirement of $32,500 ($65,000 x 50%). Therefore, the investor has $7,500 ($40,000 - $32,500) of excess equity, which the broker can lend out. Therefore, the answer is C) $7,500.

Question 3

To assess the performance of your purchase of TD Bank stock,which index would be the most relevant?

Accepted Answer

The TSX Capped Financials Index is the most relevant as it specifically tracks the performance of financial sector stocks, including banks like TD Bank, on the Toronto Stock Exchange.

Question 4

If stock markets are inefficient

Accepted Answer

If stock markets are inefficient, it means that stock prices do not fully reflect all available information, making it easier for investors to find undervalued stocks and potentially earn above-average returns.

Question 5

Which technique for valuing stocks is used in technical analysis?

Accepted Answer

Technical analysis is a method of evaluating securities by analyzing statistics generated by market activity, such as past prices and volume. Price charting is a key technique used in technical analysis as it involves examining past market data and identifying trends, patterns, and support/resistance levels to forecast future price movements. Index comparisons, DDM, and P/E ratio analysis are typically used in fundamental analysis, which focuses on company-specific and macroeconomic factors rather than market activity.

Question 6

If Jim's stock return was -1 percent and the TSX stock index had a 3 percent return,the excess return of Jim's stock is

Accepted Answer

The excess return of Jim's stock is calculated by subtracting the return of the TSX stock index from Jim's stock return, which is -1 percent - 3 percent = -4 percent.

Question 7

The best assessment of the performance of your selection of stocks is to compare the returns to

Accepted Answer

Comparing the returns of your selection of stocks to a comparable stock index during the same period provides the most accurate assessment of performance. This is because a stock index represents a broad market snapshot, and it is a good benchmark to measure the performance of individual stocks against. Comparing to the average gains or losses you had in the last five years may not be relevant or representative of the current market condition. Comparing to the average returns of GICs may not be appropriate as they are low-risk investments and not comparable to stocks. The prime rate set by the Bank of Canada is a benchmark interest rate used for lending and borrowing, which is unrelated to stock performance.

Question 8

You purchased stock worth $10 000 on margin (50 percent).Now the value of your stock has declined to $7000 and you receive a margin call.How much cash do you need to bring the margin back to the minimum level?

Accepted Answer

The initial investment was $10,000 with 50% margin, meaning you borrowed $5,000. The stock value is now $7,000, so your equity is $2,000 ($7,000 - $5,000). To maintain a 50% margin, your equity should be $3,500 (50% of $7,000). Therefore, you need to add $1,500 to your account to meet the margin requirement.

Question 9

In deciding to invest in stocks,the most time-consuming Chapter is

Accepted Answer

Fundamental analysis involves researching and analyzing a company's financial statements, industry trends, economic conditions, and competitive landscape. This can be a lengthy and involved process, as it requires a thorough understanding of the company and its market. Choosing a broker and purchasing the stock can be done relatively quickly, and monitoring results can also be time-consuming but is usually done after the investment has been made.

Question 10

A brokerage firm currently limits the margin rate to 70 percent.The amount that can be borrowed for a transaction to buy 100 shares at $50 is

Accepted Answer

To buy 100 shares at $50 each, the total cost would be $5000.

With a margin rate of 70%, the investor can borrow up to 30% of the total cost, which is $1500.

Therefore, the amount that can be borrowed for the transaction is $3500 ($5000 - $1500).

The best choice is B.

Question 11

Which of the following was put in place to restore investor confidence in the markets and to prevent further occurrences of corporate fraud?

Accepted Answer

The Sarbanes-Oxley Act was put in place in 2002 following several high-profile corporate accounting scandals (such as Enron and WorldCom), in order to restore investor confidence in the markets and prevent further occurrences of corporate fraud. It introduced new or enhanced requirements related to corporate governance, financial reporting, and internal controls, among other things. The other options listed (OSC, SEC, IIROC) are all regulatory bodies, but they were not specifically created in response to corporate fraud scandals.

Question 12

When the Bank of Canada uses interest rates to regulate the economy,it is using

Accepted Answer

The use of interest rates to regulate the economy is a tool of monetary policy. Fiscal policy refers to government spending and taxation decisions made to stimulate or slow down economic growth. Economic growth policy is a broader term that can include both monetary and fiscal policies as well as other measures. GDP policy is not a commonly used term and does not accurately describe the use of interest rates to regulate the economy.

Question 13

TD Bank pays an annual dividend of $2.12 at the rate of $0.53 quarterly.The stock is trading at $63.21.What is the effective annual yield?

Accepted Answer

The effective annual yield is the annual dividend divided by the stock price, multiplied by 4 (since there are 4 quarters in a year). In this case, the effective annual yield is $2.12 / $63.21 * 4 = 0.135, or 13.5%.

Question 14

Which of the following techniques is regarded as fundamental analysis?

Accepted Answer

Fundament analysis involves studying the financial and economic fundamentals of a company, such as its revenue and earnings. Choices B, C, and D involve other methods of analysis such as technical analysis, event-driven analysis, and analysis of external factors.

Question 15

The TSX Index had a return of 12 percent and Apple Inc.had a return of two percent over the same six month period.What can you say about whether your purchase of Apple Inc.was a good decision?

Accepted Answer

The TSX Index represents the Canadian stock market, making it an inappropriate benchmark for evaluating the performance of an American company like Apple Inc. Comparisons should ideally be made with a relevant index or benchmark that reflects the market or sector the company operates in.

Question 16

If you need to be sure to buy shares of a company when the price rises above a certain level,you need to use a

Accepted Answer

A buy stop order is used to ensure that shares are purchased when the price goes above a certain level, by setting a trigger price. Once that trigger price is reached, the order becomes a market order and is executed at the best available price. A buy limit order is used to ensure that shares are purchased at a specific price, or lower, and a buy market order is used when an investor wants to purchase shares at the current market price without setting any price parameters. A buy price order is not a commonly used term in trading.

Question 17

Which of the following is not a typical way to analyze firm-specific characteristics through financial statements?

Accepted Answer

Competitive strategy is not a typical way to analyze firm-specific characteristics through financial statements. Financial statements mainly provide information about profitability, efficiency, and liquidity of a company. Competitive strategy is analyzed through other means such as market research, industry analysis, and competitor analysis.

Question 18

The dividend discount model method is used to value a stock based on a firm's ________ and is ________ at an appropriate rate of interest.

Accepted Answer

The dividend discount model values a stock based on the present value of its future dividend payments, which are discounted at an appropriate rate of interest. Therefore, the best choice is D - future dividend payments are used, and they are discounted.

Question 19

You bought IBM stock at $70 per share.It is now $120 a share.You think it could go higher but you are nervous that it could go down and you would lose your gains.To protect your gains but still give yourself the chance to make future profits,you could place a

Accepted Answer

A sell stop order at $110 a share would allow you to protect your gains by automatically selling the stock if it drops below $110. This limits your potential losses while still allowing for some room for the stock to potentially continue to rise. A limit order to sell for $130 a share would not protect your gains if the stock were to drop before reaching that price. A limit order to sell for $110 a share would not protect your gains if the stock were to drop below $110, and a sell stop order at $130 a share would not provide enough protection for your gains as the stock is currently priced at $120.

Question 20

An example of fraud in financial reporting would be

Accepted Answer

Inflating revenues by recording income from contracts which will extend beyond one year is an example of fraud in financial reporting as it misrepresents the financial statements and gives a false impression of the company's performance. Choices A, B, and D are not examples of fraud in financial reporting.

Quiz 4: Personal Investing - Investing in Stocks