Question 1

Under margin accounts,investors can purchase more stock without putting up additional cash by leveraging the value of the eligible shares.

Accepted Answer

Margin accounts allow investors to borrow funds from brokerage firms based on the amount of eligible securities they hold as collateral. This means they can buy more stock without having to immediately put up additional cash, thereby leveraging the value of their existing shares. However, margin accounts also involve higher risks and potential losses if the value of the securities drops, as the investor would still be responsible for repaying the borrowed funds plus interest.

Question 2

What is the chief advantage of a market order?

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Question 3

A margin call occurs anytime the equity position of the margin account falls below the initial margin.

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Question 4

The short interest ratio indicates the number of days it would take for short sellers to cover all the shares sold short.

Accepted Answer

The short interest ratio, also known as days to cover, represents the number of days it would take for short sellers to repurchase all the shares sold short based on the average daily trading volume.

Question 5

Small investors often pay brokerage commissions according to the firm's chart of fees.How can this be when rates are negotiable?

Accepted Answer

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Question 6

An investor sells 100 shares of stock short at $40.
(a)Ignoring commissions,at what price will the investor earn $700?
(b)Ignoring commissions,what is the gain or loss if the stock price goes to $53 and the investor closes out the position?

Accepted Answer

The answer of An investor sells 100 shares of stock...

Question 7

Investors who sell short are expecting the price of the security to fall.

Accepted Answer

Short selling involves borrowing securities and selling them with the hope of buying them back at a lower price in the future. Therefore, investors who sell short are expecting the price of the security to fall.

Question 8

What are some of the functions of the NASD?

Accepted Answer

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Question 9

What is the rationale for different margin requirements on different types of securities? (For example,50 percent on common stock,and 30 percent on bonds corporate bonds)

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Question 10

What is the difference between the potential gains and losses on long positions versus the potential gains and losses on short sales?

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Question 11

Mr.Whiner bought 1,000 shares of Sure-Fire,Inc.,common stock at 85 and sold three months later at 73.He lost $12,000 plus commissions on this ill-fated stock purchase.He then contacted the SIPC saying that he wanted to file a claim for his investment losses.Is this loss covered by SIPC? What losses are covered?

Accepted Answer

The answer of Mr.Whiner bought 1,000 shares of Sure-Fire,Inc.,common stock...

Question 12

Joe Edwards purchased 150 shares of XYZ at $100 per share.Currently the stock is selling at $120.If he wants to be assured of a profit of at least $4050,what type of order should he place and at what price per share?

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Question 13

What are two methods of investing in stocks without a broker?

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Question 14

What is insider trading? Does it only affect large investors?

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Question 15

Does the expression "you get what you pay for" apply to full-service brokers and discount brokers?

Accepted Answer

The answer of Does the expression "you get what you...

Question 16

Specialists often sell short to meet public buy orders.

Accepted Answer

Specialists may sell short to meet the demand of the public buying stocks. This allows them to provide necessary liquidity to the market and meet the demand of investors without causing significant price increases.

Question 17

What costs and risks are incurred in using a margin account that are not present in a cash account?

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Question 18

What are the advantages to investors' of keeping their securities in street name?

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Question 19

Compare and contrast the functions and responsibilities of a NYSE specialist with those of an OTC dealer.

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Question 20

Most short sales are executed by the broker acting as the "lender" of the security sold.

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Quiz 5: How Securities Are Traded