65 - Unit 22

In every trade, there are

2 principals—the buyer and the seller.

The current minimum maintenance levels set by the SROs is

25% equity in a long margin account and 30% equity in a short margin account.

During an economic recession, which of the following items will most likely increase?

Bond prices During a recessionary period, inflation and interest rates generally decline. This causes bond prices to increase because they are inversely related to the change in interest rates.

Which ratio would be looked at to determine the liquidity of a corporation?

Current

Fiscal year accounting uses a date other than

December 31 as its year-end.

examples of systematic risk

Market risk Interest rate risk

most commonly used to evaluate the marketplace's perceived value of a particular stock?

Price-to-earnings ratio

Your client turns in a buy limit order for 100 shares of ABC at $58. Following the entry of the order, trades occur at 59, 59, 58.80, 58.20, 58.40, 57.95, 57.85. At what price was this limit order triggered?

The order was not triggered.

Which of the following illustrates an example of positive margin?

The rate of return on the investment exceeds the interest cost on the borrowed money.

o make a quantitative evaluation using the present value computation, which of the following is needed

Time period involved Account value at the end of the period Anticipated rate of return of the portfolio

An agent has a client who calls in with the following instructions: "Please place a sell stop order at $33 for my 100 shares of ABC common stock." A week later, the agent receives inside information that ABC's upcoming earnings report will be disastrous. Three days after that, the report is released and the stock plunges, falling to $33. Can the client's stop order be executed?

Yes, because the order was received prior to the agent receiving the information

If a client places an order to buy 300 DWQ at 140 stop, but not over 144, and the order is left with a specialist, this is

a buy stop limit order

A client owns 300 shares of BACH common stock in a margin account. If there were to be a significant decline in the market price of the BACH, the client would likely receive

a maintenance margin call.

The stop order does not give the agent or the firm

any discretion

When an analyst adds back the current year's depreciation to the net income, she is computing the company's

cash flow from operations.

growth stocks carry higher P/E ratios than

do value stocks.

All of the following are advantages of a margin account

less cash is needed to purchase securities leveraging is possible money is borrowed

A buy limit order will be executed at the

limit price or better (lower)

A signed loan consent agreement permits a firm to

loan out a customer's margin securities

Stops can be used to protect both

long and short positions

Food and tobacco are normally

not cyclical.

When viewing a corporation's balance sheet, you would expect to see all of the following included in owner's equity

preferred stock paid-in capital retained earnings

Core inflation is best described as an inflation rate

that excludes certain volatile goods prices.

Broker-dealers provide a bid and offer price when functioning as market makers. In this context,

the bid price represents the price the market maker is willing to pay for the stock and the offer price is the market maker's selling price.

Beta has no relationship to

unsystematic risk.

A positive correlation indicates the portfolio's value will change

with the market.

The SROs have instituted maintenance margin levels for those situations where the equity in a client's margin accounts is reduced to a dangerous level. Currently, those levels are

25% for a long account.

The initial margin requirement under Reg. T is

50% for both long and short accounts.

Which of the following is an order to purchase at higher than the current market?

A buy stop

One of your clients currently holds a short position in DEF common stock. Which of the following types of orders is designed to offer the client protection against loss?

Buy stop

One of your clients currently holds a long position in DEF common stock. Which of the following types of orders is designed to offer the client protection against loss?

Sell stop

A day order is entered to buy 500 LMN at 24.35. By the close, the firm has 100 shares at 24.25 and 200 at 24.35. If the remainder is unfilled, what is the outcome?

The customer must accept the execution for 300 shares, and the remainder of the order is canceled after the close. The representative cannot guarantee that the order will be filled by the end of day.

are under the control of the Fed.

The discount rate The reserve requirements The activities of the Federal Open Market Committee

When discussing a stock exchange, a specialist is

a member of the New York Stock Exchange who executes orders for other members and who also acts as a market maker charged with the responsibility of keeping an orderly market in designated stocks

Unsystematic risk, also known as diversifiable risk, affects only

a particular company, country, or sector and its securities.

Because the "market" has a beta of 1.0

any stock with a lower beta will generally not have price movement equal to the market.

When a company has a high P/E ratio, it means that investors

are placing greater value on expected growth in earnings

When a broker-dealer acts in the capacity of a principal in a trade, the firm has acted

as a contra party to the trade

Retained earnings represent income that has not

been paid out to shareholders.

The ending retained earnings =

beginning retained earnings + net income - dividend.

An analyst uses a stock selection method that involves analyzing a specific corporation, followed by evaluating where it fits in its industry and then viewing the overall economy. The term that best describes this method is

bottom-up

"Cyclical" refers to whether the industry is affected by

business cycles of the economy.

The primary function of the Federal Reserve System (the Fed) is to

carry out monetary policy.

A company's current ratio is their

current assets divided by their current liabilities. If their current ratio is strong, they have a highly liquid position.

During an economic downturn, one would expect to see

higher unemployment

A portfolio that has a negative correlation coefficient relative to the market will

increase in value as the market declines decrease in value as the market goes up

If a corporation has a dividend payout ratio of 70%, the undistributed earnings will

increase retained earnings

A correlation coefficient of zero means that the two stocks will move

independently

The present value of a dollar

indicates how much must be invested today at a given interest rate, to equal a specific cash value in the future

Whenever money from a foreign source enters the United States

it becomes a credit item in the U.S. balance of payments.

A corporation's capital structure consists of

its long-term debt plus shareholders' equity.

the Federal Reserve Board sets

margin requirements

The bottom-up method of stock selection goes from

micro to macro—that is, identify the specific company and then working up through the overall economy. It is the opposite of top-down.

Items such as luxuries and large-ticket items (autos, homes, appliances) are

normally cyclical.

Beta tracks a stocks co-movement with the

overall market

All of the following are examples of unsystematic risk

political risk tenure risk financial risk

like all fixed dollar investments, they are subject to

purchasing power (inflation) risk. You may wish to note that these bonds would also be subject to interest rate risk.

In a short sale, an investor sells securities

she does not own.

The price-to-earnings ratio

shows how much investors value the stock as a function of earnings to the company's market price

Beta is a measurement of

systematic risk, and low-beta stocks have less than high beta ones

Final approval of the annual operating budget for the United States is given by

the Congress

If the broker-dealer is one of the principals (either buyer or seller)

the firm is the contra party to the other side of the trade.

a bid price

the price the firm is willing to pay for the stock

offer price

the price they are asking to receive when selling the stock

A new client is opening a margin account and notices the following wording in the documentation: "You are authorized to lend to yourself or others any securities held by you in my margin account and to carry all securities lent as general loans, and you shall have no obligation to retain under your possession and control a like amount of such securities." When the client asks you what this is about, you would respond that

this is the loan consent agreement

One of the unique features of IRR is that it is a compounded rate using the

time value of money.

Only stop orders have

triggers

This is a present value computation

where the future value, time period, and earnings rate are known.