Question 1

Suppose the shares of the Chickadee Corporation traded seven times in the following sequence one day last week: 46, 45.88, 45.75, 45.50, 45.63, 46, 46.13.In this case, a limit order to sell at 46 would have been executed
A) between 46 and 46.13, whereas a market order to sell could have been executed anywhere between 45.50 and 46.13.
B) anywhere between 45.50 and 46.13, whereas a market order to sell would have been executed only at 46.
C) only at 46, whereas a market order to sell would have been executed at 46.13.
D) only at 46.13, and a market order to sell would have been executed between 46 and 46.13.

Accepted Answer

A limit order to sell at 46 would have been executed between 46 and 46.13 because the highest price in the trading sequence was 46.13, but the last traded price was 46. Therefore, the limit order would have been executed at the next available price between the highest traded price and the limit price. A market order to sell could have been executed anywhere between the lowest traded price of 45.50 and the highest traded price of 46.13.

Question 2

A stop loss order may not protect an investor's profits if
A) the price drops even slightly below the stop price before the order can be executed.
B) the price enters a prolonged period of gradual decline.
C) an unexpected event cause the price to drop steeply when the markets are closed
D) the stop loss price is never reached

Accepted Answer

An unexpected event causing the price to drop steeply when the markets are closed can result in the stock opening at a much lower price than the stop loss level, bypassing the stop loss order and not protecting the investor's profits.

Question 3

Which of the following are reasons why a person may want to warehouse liquidity?
I.protect against total loss
II.ability to exploit future opportunities
III.capitalize on the high rates of return available on cash
IV.protect against the need to disturb the existing portfolio
A) I and II only
B) I, II and IV only
C) II, III and IV only
D) I, II, III and IV

Accepted Answer

Warehouse liquidity is the practice of holding cash or highly liquid assets to maintain flexibility and protect against potential losses or unforeseeable expenses. Choice I and IV are both reasons that fall under this concept. Choice II is also a reason as warehouse liquidity provides the ability to exploit future opportunities. However, choice III is incorrect as the purpose of warehouse liquidity is not to capitalize on the high rates of return available on cash, but rather to maintain flexibility and protect against potential losses.

Question 4

One important tax rule concerning capital losses is that
A) capital losses are always fully deductible.
B) a maximum of $3,000 of losses in excess of capital gains can be written off against other income in any one year.
C) a maximum of $10,000 of losses in excess of capital gains can be written off against other income in any one year.
D) capital losses are never deductible.

Accepted Answer

The tax rule concerning capital losses is that a maximum of $3,000 of losses in excess of capital gains can be written off against other income in any one year. This means that if your capital losses exceed your capital gains by more than $3,000, you can only deduct $3,000 of the losses from your ordinary income that year. The remaining losses can be carried forward to future years and used to offset future capital gains or written off against ordinary income in $3,000 increments each year until the losses are fully used up.

Question 5

Which of the following are generally considered to be good investment guidelines?
I.Sell any security that has become riskier than anticipated.
II.Hold all securities until they produce the highest profit attainable.
III.Sell securities only if the profit can be offset with a tax loss.
IV.Sell any security that no longer meets the needs of the investor.
A) I and IV only
B) I and III only
C) I, II and IV only
D) I, II, III and IV

Accepted Answer

I is a good investment guideline because investors should minimize risk in their portfolio. IV is also a good investment guideline because investors should regularly review their portfolio and remove securities that no longer meet their investment objectives. II is not a good investment guideline because it encourages investors to hold onto securities regardless of market conditions, which could lead to missed opportunities or losses. III is also not a good investment guideline because investors should not base their selling decisions solely on tax considerations, but rather on the overall performance and goals of their portfolio.

Question 6

Which of the following are characteristics of stop-loss orders?
I.the risk of whipsawing
II.the ability to limit downside losses
III.the guaranteed execution within the order period
IV.the conversion to a market order
A) I and II only
B) III and IV only
C) I, II and IV only
D) II, III and IV only

Accepted Answer

Stop-loss orders have the risk of whipsawing as they are triggered when the market price reaches a certain level. However, they also have the ability to limit downside losses and convert to a market order when triggered. The guaranteed execution within the order period is not always true as it depends on market conditions. Therefore, options A and D are not correct. Option B is also not fully correct as it only includes characteristics related to execution, but not the risk of whipsawing.

Question 7

Explain the use of limit orders and stop-loss orders in rebalancing an investor's stock portfolio.What are the principal risks in using these orders?

Accepted Answer

The answer of Explain the use of limit orders and...

Question 8

The two primary media for warehousing liquidity are
A) money market mutual funds and money market deposit accounts.
B) certificates of deposit and short-term bond funds.
C) certificates of deposit and long-term bond funds.
D) short-term bond funds and asset allocation funds.

Accepted Answer

Money market mutual funds and money market deposit accounts are specifically designed for holding cash and providing liquidity. Certificates of deposit and short-term bond funds also provide liquidity, but may have restrictions or penalties for early withdrawal. Long-term bond funds and asset allocation funds are not designed for short-term liquidity needs.

Question 9

Late in the calendar year, Jessica must choose between selling stock that was purchased 2 years ago for $10,000 and has fallen to $7,000 or a different stock that was purchased 1 year ago for $5,000 and has risen to $7,000.If the investor has no other capital gains, which stock should she sell?

Accepted Answer

The answer of Late in the calendar year, Jessica must...

Quiz 13: Managing Your Own Portfolios

Suppose the shares of the Chickadee Corporation traded seven times in the following sequence one day last week: 46, 45.88, 45.75, 45.50, 45.63, 46, 46.13.In this case, a limit order to sell at 46 would have been executed

A stop loss order may not protect an investor's profits if

Which of the following are reasons why a person may want to warehouse liquidity? I.protect against total loss II.ability to exploit future opportunities III.capitalize on the high rates of return available on cash IV.protect against the need to disturb the existing portfolio

One important tax rule concerning capital losses is that

Which of the following are characteristics of stop-loss orders? I.the risk of whipsawing II.the ability to limit downside losses III.the guaranteed execution within the order period IV.the conversion to a market order

Explain the use of limit orders and stop-loss orders in rebalancing an investor's stock portfolio.What are the principal risks in using these orders?

The two primary media for warehousing liquidity are

Late in the calendar year, Jessica must choose between selling stock that was purchased 2 years ago for $10,000 and has fallen to $7,000 or a different stock that was purchased 1 year ago for $5,000 and has risen to $7,000.If the investor has no other capital gains, which stock should she sell?