Chapter 03 - Securities Markets

Chapter 03 Securities Markets Answer Key

1. Underwriting is one of the services provided y !!!!!. A. the S"C B. invest#ent ankers C. pu $ic$y traded co#panies %. &%'C

Difficulty: Easy

(. Under fir# co##it#ent underwriting the !!!!!! assu#es the fu$$ risk that the shares cannot e so$d to the pu $ic at the stipu$ated offering price. A. red herring ). issuing co#pany C. initia$ stockho$der D. underwriter

Difficulty: Medium

3. "*p$icit costs of an '+, tend to e around !!!!!! of the funds raised. A. 1B. .C. 1/%. (/-

Difficulty: Medium

3-1

Chapter 03 - Securities Markets

0. )arnegat 1ight so$d (002000 shares in an initia$ pu $ic offering. 3he underwriter4s e*p$icit fees were 5602000. 3he offering price for the shares was 53/2 ut i##ediate$y upon issue2 the share price 7u#ped to 503. 8hat is the est esti#ate of the tota$ cost to )arnegat 1ight of the e9uity issue: A. 5602000 ). 512(602000 C. 5(23602000 D. 512;602000 3ota$ Cost < 602000 = >03 - 3/?(002000 < 512;602000

Difficulty: Hard

/. A red herring eco#es a prospectus when !!!!. A. the pre$i#inary registration state#ent is approved y the S"C ). the '+, is co#p$ete C. the offering is seasoned %. the $ockup period e*pires

Difficulty: Medium

;. +rivate p$ace#ents can e advantageous rather than pu $ic issue ecause !!!!!!. '. private p$ace#ents are cheaper to #arket than pu $ic issues ''. private p$ace#ents #ay sti$$ e so$d to the genera$ pu $ic under S"C @u$e 100A '''. private$y p$aced securities trade on secondary #arkets A. ' on$y ). ' and ''' on$y C. '' and ''' on$y %. '2 '' and '''

Difficulty: Medium

3-(

Chapter 03 - Securities Markets

.. A $eve$ !!!!! su scri er to the AAS%AB syste# #ay enter id and ask prices. A. 1 ). ( C. 3 %. 0

Difficulty: Easy

C. 8hich one of the fo$$owing state#ents a out '+,s is not true: A. '+,s genera$$y underperfor# in the short run. ). '+,s often provide very good initia$ returns to investors. C. '+,s genera$$y provide superior $ong-ter# perfor#ance as co#pared to other stocks. %. Shares in '+,s are often pri#ari$y a$$ocated to institutiona$ investors.

Difficulty: Medium

6. 3he issue process where investors su #it ids for a new issue and the shares in an '+, are a$$ocated to the highest idders unti$ the entire issue is so$d is ca$$ed a A. est efforts offer B. %utch auction C. secondary offering %. fir# co##it#ent offer

Difficulty: Medium

10. 3he ADS" recent$y ac9uired the "CA !!!!!!! and AAS%AB recent$y ac9uired the "CA !!!!!!!!. A. Archipe$agoE 'nstinet ). 'nstinetE Archipe$ago C. 's$andE 'nstinet %. 1S"E "urone*t

Difficulty: Medium

3-3

Chapter 03 - Securities Markets

11. @ank the fo$$owing types of #arkets fro# $east integrated and organiFed to #ost integrated and organiFed. '. )rokered #arkets ''. Continuous auction #arkets '''. %ea$er #arkets 'G. %irect search #arkets A. 'G2 ''2 '2 ''' ). '2 '''2 'G2 '' C. ''2 '''2 'G2 ' D. 'G2 '2 '''2 ''

Difficulty: Hard

1(. A !!!!!! drop in the %ow Hones 'ndustria$ Average wou$d stop trading for the day. A. 10). (0C. 30%. 00-

Difficulty: Medium

13. 8hich one of the fo$$owing is not an e*a#p$e of a rokered #arket: A. @esidentia$ rea$ estate #arket ). Market for $arge $ock security transactions C. +ri#ary #arket for securities D. AAS%AB

Difficulty: Medium

3-0

Chapter 03 - Securities Markets

10. Circuit reakers wi$$ e i#posed if the %ow Hones 'ndustria$ Average drops y a #ini#u# of !!!!!! y (.30 p#. A. 10). (0C. 30%. 00-

Difficulty: Medium

1/. +urchases of new issues of stock take p$ace !!!!!!!!!. A. at the desk of the &ed B. in the pri#ary #arket C. in the secondary #arket %. in the #oney #arkets

Difficulty: Easy

1;. 'nitia$ #argin re9uire#ents on stocks are set y !!!!!!!!!. A. the &edera$ %eposit 'nsurance Corporation B. the &edera$ @eserve C. the Aew Dork Stock "*change %. the Securities and "*change Co##ission

Difficulty: Easy

1.. 8hich one of the fo$$owing types of #arkets re9uires the greatest $eve$ of trading activity to e cost effective: A. )roker #arket ). %ea$er #arket C. Continuous auction #arket %. %irect search #arket

Difficulty: Easy

3-/

Chapter 03 - Securities Markets

1C. 8hich one of the fo$$owing is a fa$se state#ent regarding ADS" specia$ists: A. ,n a stock e*change a$$ uy or se$$ orders are e*ecuted at a specia$ist4s post on the e*change B. Specia$ists can not trade for their own accounts C. Specia$ists earn inco#e fro# co##issions and spreads in stock prices %. Specia$ists stand ready to trade at 9uoted id and ask prices

Difficulty: Easy

16. @estrictions on trading invo$ving insider infor#ation app$y to !!!!!!!!!. '. corporate officers and directors ''. #a7or stockho$ders '''. re$atives of corporate directors and officers A. ' on$y ). ' and '' on$y C. '' and ''' on$y D. '2 ''2 and '''.

Difficulty: Hard

(0. An order to uy or se$$ a security at the current price is a !!!!!!!!!!!!!!. A. $i#it order B. #arket order C. stop $oss order %. stop uy order

Difficulty: Easy

(1. 8hen U.S. stock prices were converted fro# fractions to deci#a$s in (001 the #ini#u# id-ask spread charged y dea$ers !!!!!!!!. A. increased B. decreased C. re#ained the sa#e %. fe$$ at first2 ut then increased

Difficulty: Medium

3-;

Chapter 03 - Securities Markets

((. 3he #arket co$$apse of 16C. pro#pted !!!!!!!!!!!!!!!!!!!!!!!!. A. )$ue Sky $aws B. circuit reakers to ha$t trading during #arket crises C. the Securities 'nvestor +rotection Act %. the Aationa$ Securities Market Act

Difficulty: Easy

(3. 'f an investor p$aces a !!!!!!!!! order the stock wi$$ e so$d if its price fa$$s to the stipu$ated $eve$. 'f an investor p$aces a !!!!!!!!!! order the stock wi$$ e ought if its price rises a ove the stipu$ated $eve$. A. stop- uyE stop-$oss ). #arketE $i#it C. stop-$ossE stop- uy %. $i#itE #arket

Difficulty: Easy

(0. ,n a given day a stock dea$er #aintains a id price of 51000./0 for a ond and an ask price of 51003.(/. 3he dea$er #ade 10 trades which tota$ed /00 onds traded that day. 8hat was the dea$er4s gross trading profit for this security: A. 5123./ ). 5/00 C. 5(./ %. 5120/0 >1003.1/ - 1000./0?/00 < 5123./

Difficulty: Easy

3-.

Chapter 03 - Securities Markets

(/. Advantages of "CAs over traditiona$ #arkets inc$ude a$$ ut which one of the fo$$owing: A. 1ower transactions costs ). Anony#ity of the participants C. S#a$$ a#ount of ti#e needed to e*ecute and order D. A i$ity to hand$e very $arge orders

Difficulty: Medium

(;. 3he !!!!!!!!!! was esta $ished to protect investors fro# $osses if their rokerage fir#s fai$. A. C&3C ). S"C C. S'+C %. A'M@

Difficulty: Easy

(.. 8hen #atching orders fro# the pu $ic a specia$ist is re9uired to use the !!!!!!!. A. $owest outstanding id price and highest outstanding ask price ). highest outstanding id price and highest outstanding ask price C. $owest outstanding id price and $owest outstanding ask price D. highest outstanding id price and $owest outstanding ask price

Difficulty: Hard

(C. 3he process of po$$ing potentia$ investors regarding their interest in a forthco#ing initia$ pu $ic offering >'+,? is ca$$ed !!!!!!!!. A. interest ui$ding B. ook ui$ding C. #arket ana$ysis %. custo#er identification

Difficulty: Easy

3-C

Chapter 03 - Securities Markets

(6. 3he u$k of #ost initia$ pu $ic offerings >'+,s? of e9uity securities go to !!!!!!!!!!!. A. institutiona$ investors ). individua$ investors C. the fir#4s current shareho$ders %. day traders

Difficulty: Easy

30. 'nitia$ pu $ic offerings >'+,s? are usua$$y !!!!!!!!!!! re$ative to the $eve$s at which their prices sta i$iFe after they egin trading in the secondary #arket. A. over priced ). correct$y priced C. under priced %. #ispriced ut without any particu$ar ias

Difficulty: Easy

31. According to 1oughran and @itter2 initia$ pu $ic offerings tend to e*hi it !!!!!!!!!! perfor#ance initia$$y2 and !!!!!!!!!! perfor#ance over the $ong ter#. A. adE good ). adE ad C. goodE good D. goodE ad

Difficulty: Medium

3-6

Chapter 03 - Securities Markets

3(. Specia$ists try to #aintain a narrow id-ask spread ecause !!!!!!!. '. 'f the spread is too $arge they wi$$ not participate in as #any trades2 $osing co##ission inco#e ''. 3he e*change re9uires specia$ists to #aintain price continuity '''. Specia$ists are non-profit entities designed to faci$itate #arket transactions rather than #ake a profit A. ' on$y B. ' and '' on$y C. '' and ''' on$y %. '2 '' and '''

Difficulty: Easy

33. 'n a !!!!!!!!!! underwriting arrange#ent2 the underwriter assu#es the fu$$ risk that shares #ay not e so$d to the pu $ic at the stipu$ated offering price. A. est efforts B. fir# co##it#ent C. private p$ace#ent %. none of the a ove

Difficulty: Easy

30. 3he !!!!!!!!!!!!!! is the #ost i#portant dea$er #arket in the U.S. and the !!!!!!!!!!!!!! is the #ost i#portant auction #arket. A. ADS"E AAS%AB B. AAS%ABE ADS" C. CM"E ,3C %. AM"IE ADS"

Difficulty: Easy

3-10

Chapter 03 - Securities Markets

3/. 3he inside 9uotes on a $i#it order ook wou$d e co#prised of the !!!!!!. A. highest id price and the $owest ask price ). $owest id price and the $owest ask price C. $owest id price and the highest ask price %. highest id price and the highest ask price

Difficulty: Medium

3;. 3he !!!!!!!!!! syste# ena $es e*change #e# ers to send orders direct$y to a specia$ist over co#puter $ines. A. &AI ). %irect +$us C. AAS%AB D. SU+"@%,3

Difficulty: Easy

3.. 3he fu$$y auto#ated trade-e*ecution syste# insta$$ed on the ADS" is ca$$ed A. &AI B. %irect +$us C. AAS%AB %. SU+"@%,3

Difficulty: Easy

3C. Aasda9 now offers three $isting options. 3he $argest2 #ost active$y traded fir#s are on the A. Aasda9 J$o a$ Market B. Aasda9 J$o a$ Se$ect Market C. Aasda9 Capita$ Market %. Aasda9 +ink Sheet Stocks

Difficulty: Medium

3-11

Chapter 03 - Securities Markets

36. Appro*i#ate$y !!!!!!!!!! of trades invo$ving shares issued y fir#s $isted on the Aew Dork Stock "*change actua$$y take p$ace on the Aew Dork Stock "*change. A. /0B. ./C. C0%. 6/-

Difficulty: Medium

00. 3he !!!!!!!!! price is the price at which a dea$er is wi$$ing to purchase a security. A. id ). ask C. c$earing %. sett$e#ent

Difficulty: Easy

01. 3he !!!!!!!!! price is the price at which a dea$er is wi$$ing to se$$ a security. A. id B. ask C. c$earing %. sett$e#ent

Difficulty: Easy

0(. 3he difference etween the price at which a dea$er is wi$$ing to uy2 and the price at which a dea$er is wi$$ing to se$$2 is ca$$ed the !!!!!!!!!. A. #arket spread B. id-ask spread C. id-ask gap %. #arket variation

Difficulty: Easy

3-1(

Chapter 03 - Securities Markets

03. 3he id-ask spread e*ists ecause of !!!!!!!!!!!!!!!. A. #arket inefficiencies ). discontinuities in the #arkets C. the need for dea$ers to cover e*penses and #ake a profit %. $ack of trading in thin #arkets

Difficulty: Easy

00. )oth the ADS" and Aasda9 have $ost #arket share to "CAs in recent years. +art of Aasda94s response to the growth of "CAs has een to !!!!!!!. '. +urchase 'nstinet2 a #a7or "CA ''. "na $e auto#atic trade e*ecution through its new Market Center '''. Switch fro# stock ownership to #utua$ ownership A. ' on$y ). '' and ''' on$y C. ' and '' on$y %. '2 '' and '''

Difficulty: Medium

0/. 3he cost of uying and se$$ing a stock inc$ude !!!!!!!!!. '. roker4s co##issions ''. dea$er4s id-asked spread '''. price concessions investors #ay e forced to #ake A. ' and '' on$y ). '' and ''' on$y C. ' and ''' on$y D. '2 '' and '''

Difficulty: Medium

3-13

Chapter 03 - Securities Markets

0;. 3rades on the !!!!!!!!!! are the #ost $ike$y to trade inside the inside 9uotes than in other #arkets. A. ADS" ). AAS%AB #arket C. ,3C #arket %. +ink sheet #arket

Difficulty: Medium

0.. Dou purchased IDK stock at 5/0 per share. 3he stock is current$y se$$ing at 5;/. Dour gains cou$d e protected y p$acing a !!!!!!!!!. A. $i#it- uy order ). $i#it-se$$ order C. #arket order D. stop-$oss order

Difficulty: Medium

0C. Consider the fo$$owing $i#it order ook of a specia$ist. 3he $ast trade in the stock occurred at a price of 500. 'f a #arket uy order for 100 shares co#es in2 at what price wi$$ it e fi$$ed:

A. 536../ ). 500.(/ C. 500.3./ D. 500.(/ or $ess 'n this case the specia$ist wou$d have the option of #atching the uy order with the $owest $i#it se$$ order >500.(/? or set an ask price $ower than 500.(/ >500 for e*a#p$e? and trade the order fro# his own stock.

Difficulty: Medium

3-10

Chapter 03 - Securities Markets

06. Dou find that the id and ask prices for a stock are 510.(/ and 510.30 respective$y. 'f you purchase or se$$ the stock you #ust pay a f$at co##ission of 5(/. 'f you uy 100 shares of the stock and i##ediate$y se$$ the#2 what is your tota$ i#p$ied and actua$ transaction cost in do$$ars: A. 5/0 ). 5(/ C. 530 D. 5// 100>10.30 - 10.(/? = (>.(/? < 5//

Difficulty: Medium

/0. According to S"C @u$e 01/ regarding she$f registration2 fir#s can gradua$$y se$$ securities to the pu $ic for !!!!!!!!!! fo$$owing initia$ registration. A. 1 year B. ( years C. 3 years %. 0 years

Difficulty: Medium

/1. 8hat percentage of ADS" transactions is e*ecuted y specia$ists: A. 10). (/C. /0D. ./-

Difficulty: Medium

3-1/

Chapter 03 - Securities Markets

/(. Assu#e you purchased /00 shares of IDK co##on stock on #argin at 500 per share fro# your roker. 'f the initia$ #argin is ;0-2 the a#ount you orrowed fro# the roker is !!!!!!!!!. A. 5(02000 ). 51(2000 C. 5C2000 %. 51/2000 /00>500?>0.00? < 5C2000

Difficulty: Medium

/3. Dou so$d short 300 shares of co##on stock at 530 per share. 3he initia$ #argin is /0-. Dou #ust put up !!!!!!!!!. A. 502/00 ). 5;2000 C. 562000 %. 5102000 'nvest#ent < 300>30?>./0? < 0/00

Difficulty: Medium

/0. Dou short-se$$ (00 shares of 3uckerton 3rading Co.2 now se$$ing for 5/0 per share. 8hat is your #a*i#u# possi $e $oss: A. 5/0 ). 51/0 C. 5102000 D. un$i#ited 3here is no upper $i#it to the price of a share of stockE therefore no upper $i#it the price you wi$$ have to pay to rep$ace the (00 shares of 3uckerton.

Difficulty: Easy

3-1;

Chapter 03 - Securities Markets

//. Dou short-se$$ (00 shares of 3uckerton 3rading Co.2 now se$$ing for 5/0 per share. 8hat is your #a*i#u# possi $e gain ignoring transactions cost: A. 5/0 ). 51/0 C. 5102000 %. un$i#ited 3uckerton cou$d go ankrupt with a share price of 50. Dou cou$d keep the entire proceeds fro# the short sa$e.

Difficulty: Medium

/;. Dou short-se$$ (00 shares of @ock Creek &$y &ishing Co.2 now se$$ing for 5/0 per share. 'f you wish to $i#it your $oss to 5(2/002 you shou$d p$ace a stop- uy order at !!!!. A. 53../0 B. 5;(./0 C. 5/;.(/ %. 5/6../ /0 = >(/00L(00? < 5;(./0

Difficulty: Medium

3-1.

Chapter 03 - Securities Markets

/.. Dou purchased (00 shares of A)C co##on stock on #argin at 5/0 per share. Assu#e the initia$ #argin is /0- and the #aintenance #argin is 30-. Dou wi$$ get a #argin ca$$ if the stock drops e$ow !!!!!!!!. >Assu#e the stock pays no dividends and ignore interest on the #argin $oan.? A. 5(;.// B. 53/..1 C. 5(C.6/ %. 530...

Difficulty: Hard

/C. Dou purchased (/0 shares of co##on stock on #argin for 5(/ per share. 3he initia$ #argin is ;/- and the stock pays no dividend. Dour rate of return wou$d e !!!!!!!!!! if you se$$ the stock at 53( per share. 'gnore interest on #argin. A. 3/). 36C. 03%. (C-

Difficulty: Hard

/6. Specia$ists on the stock e*changes #ay do a$$ of the fo$$owing e*cept !!!!!!!!!. A. 3hey #ake a #arket in shares of the fir#s for which they specia$iFe ). 3hey keep the $i#it order ook C. Use their privi$eged infor#ation to #ake specu$ative invest#ents on their own account D. Use their privi$eged infor#ation to #ake invest#ents on eha$f of c$ients of rokerage fir#s with which they do usiness

Difficulty: Medium

3-1C

Chapter 03 - Securities Markets

;0. 3ransactions that do not invo$ve the origina$ issue of securities take p$ace in !!!!!!!!!. A. pri#ary #arkets B. secondary #arkets C. over-the-counter #arkets %. institutiona$ #arkets

Difficulty: Easy

;1. Many e*change-$isted securities are a$so traded in the over-the-counter #arket. 3rading of this sort is said to take p$ace in the !!!!!!!!!!!. A. third #arket ). fourth #arket C. after-#arket %. $ock #arket

Difficulty: Easy

;(. !!!!!!!!!! often acco#pany short sa$es2 and are used to $i#it potentia$ $osses fro# the short position. A. 1i#it orders ). @estricted orders C. 1i#it-$oss orders D. Stop- uy orders

Difficulty: Medium

;3. 3he appro*i#ate do$$ar va$ue of trades on the ADS" in (00C was A. 5./ i$$ion ). 5100 i$$ion C. 51(/ i$$ion D. 51/0 i$$ion

Difficulty: Medium

3-16

Chapter 03 - Securities Markets

;0. @egistered traders !!!!!!!!!!!!!!!!!. A. trade on their own account on$y ). perfor# trades for rokerage fir#s C. perfor# retai$ trades for the pu $ic %. trade for the govern#ent

Difficulty: Easy

;/. 8hich Congressiona$ action directed the S"C to i#p$e#ent a nationa$ co#petitive securities #arket: A. Securities Act of 1633 ). S"C Act of 1630 C. Securities Act A#end#ents of 16./ %. &inancia$ Services ModerniFation Act of 1666

Difficulty: Medium

;;. Most "uropean #arkets2 inc$uding "urone*t2 use aLan !!!!!!!!!!!!!!!!!!!!!. A. specia$ist trading syste# B. e$ectronic trading syste# C. continuous auction #arket %. direct search #arket

Difficulty: Medium

;.. 8hich of the fo$$owing state#ents a out Saitoris in Hapanese stock #arkets is incorrect: A. Saitoris #aintain the $i#it order ook ut #ay not trade for their own account B. Saitoris have #ore responsi i$ities than ADS" specia$ists C. Saitoris act as dea$ers in the Hapanese #arkets %. Saitoris are the princip$e source of $i9uidity in Hapanese #arkets

Difficulty: Medium

3-(0

Chapter 03 - Securities Markets

;C. 3he ter# Mpaying for order f$owM refers to the practice of !!!!!!!!!!!!!!!!. A. paying #ore than one roker to e*ecute your order ). dea$ers trading with their custo#ers at an outdated price C. paying a roker a re ate for directing the trade to a particu$ar stock dea$er rather than directing the order to the ADS" %. a$$ocating shares in an '+, to preferred custo#ers who agree to uy #ore shares in the after#arket

Difficulty: Medium

;6. 'f an investor uses the fu$$ a#ount of #argin avai$a $e2 the e9uity in a #argin account used for a stock purchase can e found as !!!!!!!!. A. #arket va$ue of the stock - a#ount owed on the #argin $oan ). #arket va$ue of the stock = a#ount owed on the #argin $oan C. #arket va$ue of the stock #argin $oan %. #argin $oan * #arket va$ue of the stock

Difficulty: Medium

.0. 'f the %ow Hones 'ndustria$ Average fa$$s y 10- y 11 a#2 trading wi$$ !!!!!!. A. continue unchanged B. wi$$ e ha$ted for one hour C. wi$$ e ha$ted for one-ha$f hour %. wi$$ e ha$ted for the rest of the day

Difficulty: Medium

.1. 3he C&A 'nstitute Standards of +rofessiona$ Conduct re9uire that #e# ers !!!!!. A. p$ace their c$ients interests efore their own ). disc$ose conf$icts of interest to c$ients C. infor# their e#p$oyers that they are o $igated to co#p$y with the Standards of +rofessiona$ Conduct D. 3he A'M@ Standard re9uire a$$ three

Difficulty: Medium

3-(1

Chapter 03 - Securities Markets

.(. 3rading on insider infor#ation is !!!!. '. prohi ited y federa$ $aw ''. prohi ited y the C&A 'nstitute Standards of +rofessiona$ Conduct '''. $ega$ in Hapan A. ' and '' on$y ). '' and ''' on$y C. ' and ''' on$y D. '2 '' and '''

Difficulty: Medium

.3. 3he !!!! re9uires fu$$ disc$osure of re$evant infor#ation re$ating to the issue of new securities. A. 'nsider 3rading Act of 1631 B. Securities Act of 1633 C. Securities "*change Act of 1630 %. 'nvest#ent Co#pany Act of 1600

Difficulty: Easy

.0. 3he S'+C was esta $ished y the !!!!. A. 'nsider 3rading Act of 1631 ). Securities Act of 1633 C. Securities "*change Act of 1630 D. none of these acts esta $ished the S'+C

Difficulty: Easy

./. )rokerage fir#s can change #argin-$oan practices !!!!. A. without notice ). on$y after .( hours notice C. on$y on new orders %. on$y with per#ission fro# the S"C

Difficulty: Easy

3-((

Chapter 03 - Securities Markets

.;. 8hich of the fo$$owing are true concerning short sa$es of e*change $isted stocks: '. A short sa$e is per#itted on$y if the $ast recorded change in the stock4s price was positive ''. +roceeds fro# the short sa$e #ust e kept on deposit with the roker '''. Short-se$$ers #ust post #argin with their roker to cover potentia$ $osses on the position 'G. 3he short-se$$er earns interest on any cash deposited with the roker that is used to #eet the #argin re9uire#ent A. ' and '' on$y ). '2 ''' and 'G on$y C. '' and ''' on$y %. '2 ''2 ''' and 'G

Difficulty: Hard

... %ay to day regu$ation of the Aew Dork Stock "*change and enforce#ent of e*change ru$es and federa$ securities $aws is conducted y the A. S"C. ). C&3C. C. ADS" @egu$ation2 'nc. %. U.S. %epart#ent of the 3reasury.

Difficulty: Hard

.C. 'n !!!!!!!! #arkets participants post id and ask prices at which they are wi$$ing to trade2 ut orders are not auto#atica$$y e*ecuted y co#puter. !!!!!!!!!!!! e*ecute trades for peop$e other than the#se$ves and in !!!!!!!!!!!!!!! #arkets a co#puter #atches orders with an e*isting $i#it order ook and e*ecutes the trades auto#atica$$y. A. e$ectronicE %ea$ersE rokers B. dea$erE )rokersE e$ectronic C. direct searchE )rokersE e$ectronic %. rokeredE %ea$ersE direct search

Difficulty: Hard

3-(3

Chapter 03 - Securities Markets

.6. An investor puts up 5/2000 ut orrows an e9ua$ a#ount of #oney fro# their roker to dou $e the a#ount invested to 5102000. 3he roker charges .- on the $oan. 3he stock was origina$$y purchased at 5(/ per share and in one year the investor se$$s the stock for 5(C. 3he investor4s rate of return was !!!!. A. 1.). 1(C. 10%. 16-

Difficulty: Hard

C0. An investor uys 5C2000 worth of a stock priced at 500 per share using /0- initia$ #argin. 3he roker charges ;- on the #argin $oan and re9uires a 30- #aintenance #argin. 'n one year the investor gets a #argin ca$$. At the ti#e of the #argin ca$$ the stock4s price #ust have een !!!!. A. 5(0.00 B. 5(6... C. 530.(6 %. 53(.0/

Difficulty: Hard

C1. 3he Aew Dork Stock "*change is a good e*a#p$e of !!!!!!!!!. A. an auction #arket ). a rokered #arket C. a dea$er #arket %. a direct search #arket

Difficulty: Easy

3-(0

Chapter 03 - Securities Markets

C(. 3he pri#ary #arket where new security issues are offered to the pu $ic is a good e*a#p$e of !!!!!!!!!. A. an auction #arket B. a rokered #arket C. a dea$er #arket %. a direct search #arket

Difficulty: Easy

C3. 3he over-the-counter securities #arket is a good e*a#p$e of !!!!!!!!!. A. an auction #arket ). a rokered #arket C. a dea$er #arket %. a direct search #arket

Difficulty: Easy

C0. An investor uys 51;2000 worth of a stock priced at 5(0 per share using ;0- initia$ #argin. 3he roker charges C- on the #argin $oan and re9uires a 3/- #aintenance #argin. 3he stock pays a 50./0 per share dividend in one year and then the stock is so$d at 5(3 per share. 8hat was the investor4s rate of return: A. 1../0). 16.;.C. (3.C3%. (/../-

Difficulty: Hard

3-(/

Chapter 03 - Securities Markets

C/. ')M is $isted on the ADS". 'f a share of ')M is so$d via the AAS%AB e*change in which #arket is it thought to have traded: A. +ri#ary #arket ). Secondary #arket C. 3hird #arket %. &ourth #arket

Difficulty: Easy

C;. Dou se$$ short 300 shares of Microsoft which are current$y se$$ing at 530 per share. Dou post the /0- #argin re9uired on the short sa$e. 'f you earn no interest on the funds in your #argin account what wi$$ e your rate of return after one year if Microsoft is se$$ing at 5(.: >'gnore any dividends? A. 10.00B. (0.00C. ;.;.%. 1/-

Difficulty: Hard

C.. 3he co##ission structure on a stock purchase is 5(0 p$us 50.0( per share. 'f you purchase 0 round $ots of a stock se$$ing for 5/;2 what is your co##ission: A. 5(0 ). 5(( C. 5(; D. 5(C Co##ission < (0 = >000 * .0(? < 5(C.00

Difficulty: Medium

3-(;

Chapter 03 - Securities Markets

CC. 3he co##ission structure on a stock purchase is 5/0 p$us 50.03 per share. 'f you purchase ;00 shares of a stock se$$ing for 5;/2 what is your co##ission: A. 53/ ). 50/ C. 5/3 D. 5;C Co##ission < /0 = >;00 * .03? < 5;C.00

Difficulty: Medium

C6. Dou se$$ short (00 shares of %oggie 3reats 'nc. which are current$y se$$ing at 5(/ per share. Dou post the /0- #argin re9uired on the short sa$e. 'f your roker re9uires a 30#aintenance #argin2 at what stock price wi$$ you get a #argin ca$$: >Dou earn no interest on the funds in your #argin account and the fir# does not pay any dividends? A. 5(C.C/ ). 53/..1 C. 531./0 %. 53(.(/

Difficulty: Hard

60. 3he #argin re9uire#ent on a stock purchase is (/-. Dou fu$$y use the #argin a$$owed to purchase 100 shares of MS&3 at 5(/. 'f the price drops to 5((2 what is your percentage $oss: A. 6). 1/C. 0C%. /.-

Difficulty: Medium

3-(.