Deck 3: Securities Markets

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?

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

Answer 1

E

Question 2

The following statements regarding the specialist are true:

A) Specialists maintain a book listing outstanding unexecuted limit orders.
B) Specialists earn income from commissions and spreads in stock prices.
C) Specialists stand ready to trade at quoted bid and ask prices.
D) Specialists cannot trade in their own accounts.
E) a,b,and c are all true.

Answer 2

E

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?

A) 29%
B) 40%
C) 25%
D) 33%
E) none of these

Answer 3

A

Question 4

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

A) broker's commissions
B) dealer's bid-asked spread
C) a price concession an investor may be forced to make.
D) a and b.
E) a,b,and c.

Question 5

Investment bankers

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) a and b.
E) a,b,and c.

Question 6

A purchase of a new issue of stock takes place

A) in the secondary market.
B) in the primary market.
C) usually with the assistance of an investment banker or dealer.
D) a and b.
E) b and c.

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.

A) $21
B) $50
C) $49
D) $80
E) none of these

Question 8

Initial margin requirements are determined by

A) the Ontario Security Commission.
B) the Bank of Canada.
C) the Toronto Stock Exchange.
D) b and c.
E) a and b.

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 __________

A) stop-loss order
B) limit-buy order
C) market order
D) limit-sell order
E) none of these.

Question 10

Which one of the following statements regarding orders is false?

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 day order expires at the close of the trading day.
E) None of these.

Question 11

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

A) $3,000
B) $5000
C) $2000
D) $9000
E) $7800

Question 12

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

A) $4,800.
B) $12,000.
C) $5,600.
D) $7,200.
E) none of these.

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.

A) 0.33
B) 0.55
C) 0.43
D) 0.23
E) 0.25

Question 14

Restrictions on trading involving insider information apply to the following except

A) corporate officers and directors.
B) relatives of corporate directors and officers.
C) major stockholders.
D) all of these.
E) none of these.

Question 15

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

A) Option volume on the TSX is greater than that on the ME.
B) Share volume of TSX trades are greater than that of the ME.
C) The TSX is the only stock exchange that is national in scope.
D) a and b.
E) b and c.

Question 16

The use of the Internet to trade and underwrite securities

A) is illegal under OSC regulations
B) is regulated by the Toronto Stock Exchange
C) is expected to grow quickly
D) increases underwriting costs for a new security issue
E) is regulated by the National Association of Securities Dealers
The OSC permits trading and underwriting of securities over the Internet,but has required firms participating in this activity to take steps to safeguard investment funds.This form of underwriting is expected to grow quickly due to its lower cost.It is not regulated by either the NYSE or the NASD.

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.

A) 25%
B) -33%
C) 44%
D) -42%
E) -54%

Question 18

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

A) limit-sell order
B) limit-buy order
C) stop-buy order
D) day-order
E) none of these.

Question 19

In a "best-efforts" basis

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

Question 20

The secondary market consists of

A) transactions on the ME.
B) transactions in the OTC market.
C) transactions through the investment banker.
D) a and b.
E) a,b,and c.

Question 21

Nasdaq subscriber levels

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) a,b,and c.

Question 22

Specialists on stock exchanges perform the following functions

A) Act as dealers in their own accounts.
B) Analyze the securities in which they specialize.
C) Provide liquidity to the market.
D) a and b.
E) a and c.

Question 23

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

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

Question 24

You want to buy 100 shares of Hotstock Inc.at the best possible price as quickly as possible.You would most likely place a

A) stop-loss order
B) stop-buy order
C) market order
D) limit-sell order
E) limit-buy order

Question 25

Assume you purchased 100 shares of common stock at $50 per share using 2,500 of your own money.The initial margin requirement is 50%.If the minimum margin is 30%,at what prince would you get a margin call?

A) $26.14
B) $50.00
C) $35.71
D) $77.12
E) $78.00

Question 26

Which of the following orders instructs the broker to buy at the current market price?

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

Question 27

The floor trader is best described as

A) an independent member of the exchange who owns a seat and handles overload work for commission brokers.
B) someone who makes a market in one or more securities.
C) a representative of a brokerage firm who is on the floor of the exchange.
D) a frequent trader who performs no public function but executes trades for small investors.
E) any counter party to a trade executed on the floor of the exchange.

Question 28

A sale by Nortel of new stock to the public would be a(n)

A) short sale
B) seasoned new issue offering
C) private placement
D) secondary market transaction
E) initial public offering

Question 29

You sold short 300 shares of common stock at $55 per share.The initial margin is 60%.At what stock price would you receive a margin call if the minimum margin is 35%?

A) $51
B) $65
C) $35
D) $40
E) none of these

Question 30

You want to purchase XYZ stock at $60 from your broker using as little of your own money as possible.If initial margin is 50% and you have $3000 to invest,how many shares can you buy?

A) 100 shares
B) 200 shares
C) 50 shares
D) 500 shares
E) 25 shares

Question 31

The U.S.over-the-counter market

A) has been growing in recent years.
B) is an automated market.
C) contains some firms that qualify for NYSE listing.
D) a and b.
E) a,b,and c.

Question 32

The finalized registration statement for new securities approved by the OSC is called

A) a red herring
B) the preliminary statement
C) the prospectus
D) a best-efforts agreement
E) a firm commitment

Question 33

Assume you sold short 100 shares of common stock at $50 per share.The initial margin is 60%.What would be the minimum margin if a margin call is made at a stock price of $60?

A) 40%
B) 33%
C) 35%
D) 25%
E) none of these

Question 34

A prompt offering prospectus

A) is a way of placing issues in the primary market.
B) allows firms to register securities for sale in advance of the actual time of sale.
C) increases transaction costs to the issuing firm.
D) a and b.
E) a and c.

Question 35

The over-the-counter market for exchange-listed securities is called the:

A) third market
B) fourth market
C) Nasdaq
D) after-market
E) none of these.

Question 36

Shares for short transactions

A) are usually borrowed from other brokers.
B) are typically shares held by the short seller's broker in street name.
C) are borrowed from commercial banks.
D) b and c.
E) none of these.

Question 37

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/share? The stock paid no dividends during the period,and you did not remove any money from the account before making the offsetting transaction.

A) 20%
B) 25%
C) 22%
D) 77%
E) none of these

Question 38

Which of the following orders is most useful to short sellers who want to limit their potential losses?

A) Limit order
B) Discretionary order
C) Limit-loss order
D) Stop-buy order
E) None of these

Question 39

Which of the following is not required under the AIMR standards of professional conduct?

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 these are required under the AIMR standards

Question 40

The minimum market value required for an initial listing on the Toronto Stock Exchange is

A) $4,000,000
B) $2,500,000
C) $1,100,000
D) $60,000,000
E) 100,000,000

Question 41

Of the secondary stock markets,which have been expanding and which have been contracting? Give some of the reasons for the changes.

Question 42

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

A) $4,800.
B) 12,000.
C) $2,250.
D) $7,200.
E) none of these.

Question 43

Discuss margin buying of common stocks.Include in your discussion the advantages and disadvantages,the types of margin requirements,how these requirements are met,and who determines these requirements.

Question 44

Electronic Communications Networks (ECNs)may be used
I)as an alternative to the TSX.
II)as an alternative to Nasdaq.
III)by institutional traders.
IV)to eliminate the bid-ask spread.

A) I and III
B) II,and IV
C) I,II,and III
D) I and IV
E) I,II,III,and IV

Question 45

According to the AIMR Standards of Professional Conduct,AIMR members have responsibilities to all of the following except:

A) the government
B) the profession
C) the public
D) the employer
E) clients and prospective clients

Question 46

List three factors that are listing requirements for the Toronto Stock Exchange.Why does the exchange have such requirements?

Question 47

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?

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

Question 48

Which of the following is true regarding private placements of primary security offerings?

A) Extensive and costly registration statements are required by the OSC.
B) For very large issues,they are better suited than public offerings.
C) They trade in secondary markets.
D) The shares are sold directly to a small group of institutional or wealthy investors.
E) They have greater liquidity than public offerings.

Question 49

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

A) $4500
B) unlimited
C) zero
D) $9000
E) cannot tell from the information given

Question 50

In a typical underwriting arrangement the investment banking firm
I)sells shares to the public via an underwriting syndicate.
II)purchases the securities from the issuing company.
III)assumes the full risk that the shares may not be sold at the offering price.
IV)agrees to help the firm sell the issue to the public but does not actually purchase the securities.

A) I,II,and III
B) I,III,and IV
C) I and IV
D) II and III
E) I and II

Question 51

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.

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

Question 52

Assume you purchased 100 shares of common stock at $50 per share using 2,500 of your own money.The initial margin requirement is 50%.If the maintenance margin is 30%,at what prince would you get a margin call?

A) $26.14
B) $50.00
C) $35.71
D) $77.12
E) $78.00

Question 53

List two advantages and two disadvantages or concerns about the use of Electronic Communications Networks (ECNs).

Question 54

Assume you sell short 1000 shares of common stock at $35 per share,with initial margin at 50%.What would be your rate of return if you repurchase the stock at $25/share? The stock paid no dividends during the period,and you did not remove any money from the account before making the offsetting transaction.

A) 20.47%
B) 25.63%
C) 57.14%
D) 77.23%
E) none of these

Question 55

You sold short 150 shares of common stock at $27 per share.The initial margin is 45%.Your initial investment was

A) $4,800.60.
B) $12,000.25.
C) $2,250.75.
D) $1,822.50.
E) none of these.