Ch 2 (All Q)
86) Recently, you sold 500 shares of stock for $16.60 a share. The sale was a short sale with an initial margin requirement of 70 percent. The maintenance margin is 35 percent. The stock is currently trading at $17.80 a share. What is your current short position in this stock? A) $10,362 B) $11,976 C) $8,900 D) $6,830 E) $4,916 87) 88)
C
55) Rosita purchased 300 shares of a stock for $37 a share. Today, the stock is selling for $41 a share. The initial margin requirement is 70 percent and the maintenance margin is 30 percent. Rosita had to pay in cash to purchase the stock and must have at least in equity today. A) $3,690; $3,690 B) $3,690; $3,330 C) $8,610; $3,690 D) $7,770; $3,690 E) $7,770; $3,330
D
66) You purchase 500 shares of stock on margin at a cost per share of $22. The initial margin requirement is 60 percent. The effective interest rate on the margin loan is 6.4 percent. How much interest will you pay if you repay the loan in four months? A) $102.16 B) $68.77 C) $117.04 D) $91.93 E) $112.38
D
67) Sarah purchased 600 shares of Detroit Motors stock at a price of $60 a share. The initial margin requirement is 70 percent and the maintenance margin is 30 percent. The effective interest rate on the margin loan is 6.5 percent. How much margin interest will she pay if she repays the loan in seven months? A) $647.96 B) $387.29 C) $530.42 D) $404.12 E) $417.29
D
14) An investor who has a resource constraint: A) has insufficient funds to purchase a security. B) will only invest in socially acceptable securities. C) has a relatively high marginal tax rate. D) has only one source of income. E) pays no income taxes.
A
2) Asset allocation is the: A) distribution of investment funds among various broad asset classes. B) selection of specific securities within a particular class or industry. C) division of a purchase price between a cash payment and a margin loan. D) dividing of assets into those that are hypothecated and those that are not. E) division of a portfolio into short and long positions.
A
23) Tom recently inherited a large sum of money that he wants to invest in the stock market. Since he has no investment experience, he has decided that he would like to work with a professional who can explain the market to him and also manage his funds for him. Ted most likely needs the services offered by a(n): A) full-service broker. B) deep-discount broker. C) online broker. D) discount broker. E) cyber broker.
A
27) Staci just used $5,000 of cash plus a $2,500 margin loan to purchase $7,500 worth of stock. This is the only transaction in her brokerage account. According to her account balance sheet, she now has account equity of: A) $5,000. B) $15,000. C) $2,500. D) $12,500. E) $7,500.
A
29) Anita wants to buy $10,000 of securities in her margin account. Her advisor has informed her that she must pay a minimum of $7,000 in cash and maintain a minimum equity position of 30 percent. The initial margin requirement is percent and the maintenance margin is percent. A) 70; 30 B) 70; 50 C) 30; 30 D) 70; 70 E) 30; 70
A
3) Jack is researching chemical companies in an effort to determine which company's stock he should purchase. This process is known as: A) security selection. B) purchase shorting. C) marketing research. D) asset allocation. E) market timing.
A
42) On August 8 of this year, Brent sold 500 shares of ADO stock for $24 a share. On September 6 of this year, he purchased 500 shares of ADO stock to cover his position. The transaction on August 8: A) was a short sale. B) created a long transaction. C) was a margin trade. D) was a wrap transaction. E) was a pooling transaction.
A
45) The maximum loss you can incur on a short sale is: A) unlimited. B) zero. C) limited to the margin loan plus interest. D) limited to your initial margin. E) limited to your initial equity.
A
5) Kay just purchased $5,000 worth of stock. She paid $3,000 in cash and borrowed $2,000. In this example, the term margin refers to: A) the percentage of the purchase that was paid incash. B) any future increase in the value of the stock. C) the percentage of the purchase paid with borrowedfunds. D) any future decrease in the value of the stock. E) the total amount of the purchase.
A
63) Mary purchased 100 shares of Best Foods stock on margin at a price of $49 a share. The initial margin requirement is 65 percent and the maintenance margin is 30 percent. What is the lowest the stock price can go before Mary receives a margin call? A) $24.50 B) $30.00 C) $33.00 D) $17.00 E) $28.00
A
72) Three months ago, Trevor purchased 500 shares of stock at a cost per share of $64.20. The purchase was made on margin with an initial margin requirement of 65 percent. Trevor pays 1.6 percent over the call money rate of 4.8 percent. What will his total dollar return be on this investment if he sells his shares today at a price per share of $63.40? Ignore dividends. A) -$575.60 B) -$548.60 C) -$539.67 D) -$591.19 E) -$534.95
A
73) Robin sold 800 shares of a non-dividend paying stock this morning for a total of $29,440. She had purchased these shares on margin nine months ago at a cost per share of $35. The initial margin requirement on this stock is 60 percent and the maintenance margin is 30 percent. Robin pays 1.2 percent over the call money rate of 4.9 percent. What is her total dollar return on this investment? A) $931.41 B) $1,164.93 C) $1,440.00 D) $897.29 E) $816.48
A
75) You recently purchased 1,300 shares of stock at a cost per share of $54.10. The initial margin requirement on this stock is 60 percent and the maintenance margin is 30 percent. The stock is currently valued at $42.30 a share. What is your current margin position? Ignore margin interest. A) 48.84 percent B) 78.18 percent C) 65.28 percent D) 46.91 percent E) 63.05 percent 76)
A
85) Recently, you sold 1,000 shares of stock for $21,400. The sale was a short sale with an initial margin requirement of 60 percent. The maintenance margin is 30 percent. The stock is currently trading at $27.50 a share. What is your current margin position in this stock? A) 24.51 percent B) 46.69 percent C) 32.09 percent D) 28.11 percent E) 43.98 percent
A
89) Neshoba Industries stock is selling for $33 a share. You would like to purchase as many shares of this stock as you can. Your margin account currently has available cash of $7,000 and the initial margin requirement is 65 percent. What is the maximum number of shares you can buy? A) 326 shares B) 193 shares C) 408 shares D) 287 shares E) 300 shares
A
90) Sam is purchasing 800 shares of RPT, Inc., stock at a price per share of $15.50. What is the minimum amount the Federal Reserve will require Sam to pay in cash for this purchase? A) $6,200 B) $10,968 C) $9,800 D) $11,960 E) $4,488
A
94) You recently purchased 200 shares of stock at a cost per share of $22.25. The initial margin requirement on this stock is 75 percent and the maintenance margin is 50 percent. The stock is currently valued at $24.00 a share. What is your current margin position? Ignore margin interest. A) 76.82 percent B) 73.83 percent C) 75.69 percent D) 74.95 percent E) 73.01 percent
A
17) Brooke has decided to invest 55 percent of her money in large company stocks, 40 percent in small company stocks, and 5 percent in cash. This is a(n) decision. A) tax-advantaged B) asset allocation C) active strategy D) market timing E) security selection
B
18) The SIPC: A) guarantees cash balances held in brokerage accounts up to $500,000. B) protects investors from missing assets when a brokerage firmcloses. C) protects private brokerage firms from bankruptcy. D) guarantees investors against any loss related to an investment account held at a brokerage firm. E) is an agency of the federal government.
B
28) Ann just purchased $10,000 of stock. She paid $8,000 in cash and borrowed the remaining $2,000 needed to pay for this purchase. If you constructed a balance sheet reflecting this transaction, the total assets would be: A) $21,000. B) $10,000. C) $15,000. D) $3,000. E) $9,000.
B
41) Which one of the following describes a short position? A) Loaning a security to your broker to cover a margin call B) Selling a security that you do not own C) Selling a security that you originally purchased on margin D) Purchasing a security on margin E) Having less equity than required in your margin account
B
44) If you benefit when a security decreases in value, you have a position in the security. A) margined B) short C) long D) covered E) wrapped
B
48) You recently purchased 800 shares of Southern Timber stock for $35 a share. Your broker required a cash payment of $19,600, plus trading costs, for this purchase. What was the initial margin requirement? A) 60 percent B) 70 percent C) 65 percent D) 80 percent E) 75 percent
B
49) Theresa has a margin account with a 60 percent initial margin requirement and a 35 percent maintenance margin. What is the maximum dollar amount of stock she can purchase if her cash balance in the account is $35,300? A) $31,900.00 B) $58,833.33 C) $44,093.33 D) $91,142.86 E) $19,140.00 47)
B
53) You own 500 shares of a stock that you purchased on margin at a price per share of $20.12. The stock is currently valued at $24 a share. Your broker advised you today that your minimum equity position for this purchase is $4,800 as of today. What is the maintenance margin percentage? A) 25 percent B) 40 percent C) 30 percent D) 35 percent E) 50 percent
B
56) Allan purchased 500 shares of stock on margin for $31.75 a share and sold the shares five months later for $34.50 a share. The initial margin requirement was 65 percent and the maintenance margin was 30 percent. The interest rate on the margin loan was 8.5 percent. He received no dividend income. What was his holding period return? A) 10.76 percent B) 11.46 percent C) 7.05 percent D) 9.88 percent E) 8.45 percent 56)
B
57) Tony purchased 100 shares of T-Rex stock for $43 a share. On the same day, Sam also purchased 100 shares of T-Rex stock for $43 a share. Tony paid cash for his purchase while Sam used margin. The initial margin requirement on this stock is 60 percent while the maintenance margin is 40 percent. Both Tony and Sam sold their shares after eight months at a price of $40 a share. The stock pays no dividends. Tony had a holding period percentage return of percent as compared to Sam's percent return. Ignore margin interest and trading costs. A) -4.19; -6.98 B) -6.98; -11.63 C) -6.98; -4.19 D) -4.19; -11.63 E) -11.63;-7.56
B
60) You purchased a stock for $18.45 a share using 70 percent margin. You sold the stock seven months later for $19.85 a share. You did not receive any dividend income. What was your holding period percentage return on this investment? Ignore trading costs and margin interest. A) 12.13 percent B) 10.84 percent C) 8.77 percent D) 11.75 percent E) 9.12 percent 61)
B
7) The minimum equity that must be maintained at all times in a margin account is called the: A) call requirement. B) maintenance margin. C) initial equity position. D) margin call. E) initial margin.
B
74) You recently purchased 200 shares of stock at a cost per share of $32.50. The initial margin requirement on this stock is 75 percent and the maintenance margin is 50 percent. The stock is currently valued at $35.00 a share. What is your current margin position? Ignore margin interest. A) 73.83 percent B) 76.79 percent C) 75.69 percent D) 73.01 percent E) 74.95 percent
B
78) You short sold 700 shares of a stock at $25 a share. The initial margin requirement is 75 percent and the maintenance margin is 35 percent. What is the amount of your total liability for this transaction as initially shown on your account balance sheet? A) $22,210 B) $17,500 C) $8,640 D) $37,440 E) $28,800
B
79) Elizabeth short sold 400 shares of stock at $72 a share. One month later, she covered the short at a price of $68. What was her total dollar return on this investment? A) -$2,400 B) $1,600 C) $2,200 D) -$920 E) -$1,800
B
81) Mike short sold 400 shares of DeSoto Lumber stock at $22 a share at an initial margin of 70 percent. The maintenance margin is 35 percent. What is the highest the stock price can go before he receives a margin call? A) $25.48 B) $27.70 C) $26.22 D) $28.16 E) $24.12
B
82) The short interest on Blue Water Cruisers stock was 351,900 when the market opened this morning. During the day, 288,500 shares were covered and 151,600 shares were sold short. What was the short interest on this stock at the end of the trading day? A) 203,100 shares B) 215,000 shares C) 233,100 shares D) 447,900 shares E) 308,100 shares
B
84) Last week, you sold 300 shares of ABC stock for $6,300. The sale was a short sale with an initial margin requirement of 70 percent. The maintenance margin is 40 percent. Some positive news concerning the company was released last night and the stock price jumped this morning to $28 a share. What is your current margin position in this stock? A) 48.33 percent B) 27.50 percent C) 61.33 percent D) 56.67 percent E) 38.68 percent
B
9) Sam purchased 500 shares of Microsoft stock which he has pledged to his broker as collateral for the loan in his margin account. This process of pledging securities is called: A) leveraging. B) hypothecation. C) margin calling. D) street securitization. E) maintaining the margin.
B
93) Sarah purchased 700 shares of Detroit Motors stock at a price of $45 a share. The initial margin requirement is 70 percent and the maintenance margin is 30 percent. The effective interest rate on the margin loan is 6.5 percent. How much margin interest will she pay if she repays the loan in five months? A) $217.29 B) $251.25 C) $230.42 D) $187.29 E) $204.12 93)
B
96) Last week, you sold 800 shares of Ace stock for $24,000. The sale was a short sale with an initial margin requirement of 70 percent. The maintenance margin is 40 percent. Some positive news concerning the company was released last night and the stock price jumped this morning to $35 a share. What is your current margin position in this stock? A) 38.68 percent B) 45.71 percent C) 56.67 percent D) 27.50 percent E) 61.33 percent
B
11) The amount of common stock held in short positions is referred to as the short: A) margin. B) sale. C) interest. D) proceeds. E) shares.
C
21) An investor who follows a fully active strategy will: A) maintain a relatively constant mix of asset classes while continually buying and selling individual securities. B) concentrate solely on asset allocation to maximize potential returns. C) move money between asset classes as well as try to select the best performers in each class. D) focus on picking individual stocks only. E) move money between asset classes but will not be concerned about which individual securities are owned.
C
24) Which one of the following statements is correct? A) Most brokerage agreements require disputes be settled in a court oflaw. B) Churning is the preferred method of providing deep-discount brokerage services. C) Full service brokers frequently provide financial planning services to clients. D) Discount brokers only provide order execution services. E) Arbitration is a formal legal process for settling disputes related to brokerage accounts.
C
3) A Roth IRA: A) funds are taxed at the time you begin withdrawals. B) is a form of "tax-deferred" account. C) invests after-tax dollars. D) are well-suited to investors nearing retirement. E) is the type of account offered by most employers.
C
33) If you opt to purchase shares of stock on margin rather than with cash, you will: A) have equal rates of return regardless of how the purchase is made. B) eliminate any potential profit. C) increase your maximum potential rate of return. D) guarantee yourself a profit. E) decrease your maximum potential rate of return.
C
43) A short sale: A) is a bullish outlook towards a security. B) creates a long position in a stock. C) involves the borrowing of securities. D) is the purchase of less than 100 shares of a stock. E) is the resale of a security within four hours of purchase.
C
47) Tate Industries stock is selling for $20 a share. You would like to purchase as many shares of this stock as you can. Your margin account currently has available cash of $4,500 and the initial margin requirement is 75 percent. What is the maximum number of shares you can buy? A) 408 shares B) 360 shares C) 300 shares D) 193 shares E) 287 shares
C
48) Todd has a margin account with $17,400 in available cash. The initial margin is 70 percent and the maintenance margin is 30 percent. What is the maximum number of shares he can purchase if the price per share is $44? A) 698 shares B) 842 shares C) 564 shares D) 395 shares E) 744 shares
C
49) Donna recently purchased 500 shares of Deltona stock for $33.00 a share. Her broker required a cash payment of $10,725, plus trading costs, for the purchase. What is the initial margin requirement on this particular stock? A) 75 percent B) 60 percent C) 65 percent D) 80 percent E) 90 percent
C
59) A stock was purchased for $45 a share and sold ten months later for $48 a share. If the shares were purchased totally with cash the holding period return would be percent as compared to percent if the purchase was made using 70 percent margin. Ignore trading costs and margin interest. A) 5.56;3.89 B) 5.88;8.40 C) 5.56; 7.94 D) 5.88;6.69 E) 5.88;4.12
C
62) Rudolfo purchased 900 shares of stock for $62.20 a share and sold them ten months later for $64.60 a share. The initial margin requirement on this stock is 75 percent and the maintenance margin is 40 percent. Ignoring dividends and costs, what is his holding period return? A) 3.86 percent B) 4.54 percent C) 5.14 percent D) 3.72 percent E) 4.95 percent
C
66) You purchased 500 shares of stock for $28.50 a share. The initial margin requirement is 65 percent and the maintenance margin is 35 percent. What is the maximum percentage decrease that can occur in the stock price before you receive a margin call? A) 62 percent B) 57 percent C) 46 percent D) 38 percent E) 35 percent
C
67) Nelson purchased 1,600 shares of stock for $18.75 a share. The initial margin requirement is 70 percent and the maintenance margin is 40 percent. What is the maximum percent by which the stock price can decline before he receives a margin call? A) 45 percent B) 65 percent C) 50 percent D) 70 percent E) 30 percent 65)
C
70) Eight months ago, Freda purchased 500 shares of stock on margin at a price per share of $35. The initial margin requirement on her account is 70 percent and the maintenance margin is 40 percent. The call money rate is 4.75 percent and she pays 2 percent above that rate. Today, she sold these shares for $37.50 each. What is her annualized rate of return? A) 16.42 percent B) 8.50 percent C) 12.70 percent D) 14.90 percent E) 10.61 percent 71)
C
77) Yvette recently purchased 500 shares of stock at a cost per share of $43.50. The initial margin requirement on this stock is 75 percent and the maintenance margin is 40 percent. The stock is currently valued at $44.75 a share. What is her current margin position? Ignore margin interest. A) 74.78 percent B) 76.14 percent C) 75.70 percent D) 74.29 percent E) 76.03 percent
C
8) Staci owns 1,000 shares of stock in a margin account. Those shares are most likely held in: A) transit. B) her registered name. C) street name. D) a discretionary account. E) a wrap account.
C
8) When your equity position in a security is less than the required amount, your brokerage firm will issue a: A) limit order. B) leverage call. C) margin call. D) margin certificate. E) cash certificate.
C
52) You purchased 1,000 shares of stock at $42 a share. The stock is currently selling for $45 a share. The initial margin was 70 percent and the maintenance margin is 30 percent. What is your current margin position? A) 25.00 percent B) 63.59 percent C) 28.36 percent D) 72.00 percent E) 75.00 percent
D
1) Market timing is the: A) placing of an order within the last half-hourof trading for a day. B) placing of trades within the last half-hour prior to the commencement of daily trading. C) period of time between the placement of a short sale and the covering of that sale. D) buying and selling of securities in anticipation of the overall direction of the market. E) staggering of either buy or sell orders to mask the total size of a large transaction.
D
12) A company that owns income-producing real estate such as an apartment complex or a retail shopping center is called a(n): A) EAR. B) SPIC. C) SIPC. D) REIT. E) REEF.
D
15) To be considered liquid, a security must: A) be held for less than one year. B) pay dividends. C) be able to be sold on short notice. D) be able to be sold quickly with little, if any, price concession. E) be held in a cash account.
D
22) Which one of the following decisions falls under the category of asset allocation? A) Adopting a passive investment strategy B) Deciding to actively analyse individual securities C) Purchasing Ford stock rather than General Motors stock D) Determining that thirty percent of a portfolio should be invested in bonds E) Deciding to use an online broker
D
26) Which one of the following statements is correct? A) A margin loan is treated as an asset on an account balance sheet. B) The percentage of a purchase paid for with borrowed funds is referred to as the margin. C) The call money rate is the rate of interest brokerage firms charge on margin loans. D) Margin is equal to account equity divided by the value of the securities owned. E) The spread is the fee a deep-discount broker charges to execute a trade.
D
29) The absolute minimum initial margin requirement is set by the: A) brokerage firm. B) individual investor. C) Securities and Exchange Commission. D) Federal Reserve. E) Security Investors Protection Corporation.
D
35) If you ignore a margin call, your broker: A) will increase both your margin loan and the rate of interest on that loan. B) will seize all the assets in your account. C) will close your account. D) may sell some of your securities to repay the margin loan. E) may place a short sale on your behalf to cover the amount of thecall.
D
36) Lauren Mitchell has a margin account with a local brokerage firm, RL Brokers. She recently purchased 200 shares of Abbot Industries common stock that trades on the New York Stock Exchange (NYSE). These shares are held in street name and are registered under the name of: A) Abbot Industries. B) the New York Stock Exchange. C) the Securities and Exchange Commission. D) RL Brokers. E) Lauren Mitchell.
D
37) Which one of the following is generally true concerning securities held in street name? A) All dividend checks are mailed to your street address. B) There is a greater likelihood the security may be stolen. C) The securities are registered under your mailing address rather than your name. D) The brokerage firm is the owner of record. E) The annual stock report is mailed directly to your streetaddress.
D
39) A discretionary account: A) is the account used to pledge securities as collateral for a margin loan. B) charges an annual fee to cover all trading and management services. C) is the same as a wrap account. D) authorizes a broker to trade securities on your behalf. E) is the term applied to brokerage accounts with check-writing and credit card services.
D
4) A brokerage account in which purchases can be made using credit is referred to as which type of account? A) funds available B) cash C) call D) margin E)Clearing
D
46) What is the maximum loss you can incur if you have a long position on a stock in a cash account? A) The initial margin B) Zero C) The margin loan plus interest D) The initial investment E) Unlimited
D
50) Suzette recently purchased 300 shares of Nu Electronics stock for $4.40 a share. Her broker required a cash payment of $1,320, plus trading costs, for the purchase. What is the initial margin requirement on this stock? A) 80 percent B) 75 percent C) 90 percent D) 100 percent E) 70 percent
D
51) Stephen is purchasing 700 shares of KPT, Inc., stock at a price per share of $20.80. What is the minimum amount the Federal Reserve will require Stephen to pay in cash for this purchase? A) $9,800 B) $4,488 C) $11,960 D) $7,280 E) $10,968
D
69) Seven months ago, you purchased 400 shares of stock on margin. The initial margin requirement on your account is 60 percent and the maintenance margin is 30 percent. The call money rate is 4.8 percent and you pay 1.85 percent above that rate. The purchase price was $16 a share. Today, you sold these shares for $18.00 each. What is your annualized rate of return? A) 56.87 percent B) 42.77 percent C) 26.15 percent D) 33.35 percent E) 64.64 percent
D
83) Jennifer believes that Northern Wine stock is going to decline in value so she is short selling 1,000 shares at $32 a share. Her initial margin requirement is 70 percent and the maintenance margin is 30 percent. What is the highest the stock price can go before she receives a margin call? A) $40.15 B) $38.97 C) $43.75 D) $41.85 E) $45.77 80)
D
83) You just sold 1,200 shares of stock short at a price per share of $13.50. The initial margin requirement is 60 percent and the maintenance margin is 30 percent. What is your initial equity position? A) $7,520 B) $16,200 C) $10,520 D) $9,720 E) $6,480
D
91) Louis purchased 300 shares of stock on margin for $22.15 a share and sold the shares eleven months later for $24.50 a share. The initial margin requirement was 75 percent and the maintenance margin was 30 percent. The interest rate on the margin loan was 8.5 percent. He received no dividend income. What was his holding period return? A) 10.76 percent B) 8.45 percent C) 7.05 percent D) 11.56 percent E) 9.88 percent
D
14) Walter is trying to decide whether he wants to purchase shares in General Motors, Ford, or Honda, all of which are auto manufacturers. Walter is making a(n) decision. A) active strategy B) risk aversion C) tax-advantaged D) asset allocation E) security selection
E
18) Kay plans to retire in two years and wishes to liquidate her account at that time. Kay has a constraint. A) liquidity B) tax C) special circumstances D) resource E) horizon
E
19) The determination of which individual stocks to purchase within a particular asset class is referred to as: A) market timing. B) security analysis. C) asset allocation. D) market selection. E) security selection.
E
24) You currently have $5,000 in cash in your brokerage account. You decide to spend $8,000 to purchase shares of stock and borrow $3,000 from your broker to do so. Which type of brokerage account do you have? A) Asset allocation B) Short C) Cash D) Wrap E) Margin
E
25) Martin has an investment account with William, who is a broker with City Brokerage. Martin believes that William has mishandled his account by churning it. If he files a complaint against William seeking compensation, the case will most likely be decided by: A) a civil suit judge. B) the office manager of City Brokerage. C) the SEC Hearing Board. D) a jury. E) an arbitration panel.
E
30) You open a margin account with a local broker and purchase shares of stock. The house maintenance margin requirement for your account is set by: A) the Federal Reserve. B) the SIPC. C) the SEC. D) the stock exchange. E) your broker.
E
34) What is the purpose of a margin call? A) to advise you that the interest rate on your loan has changed B) to remind you of the upcoming monthly payment due on your margin loan C) to let you know the amount of funds that are now available for you to borrow D) to inform you that your margin loan is due and payable E) to demand funds to increase your margin position
E
38) Sarah has a brokerage account with Jeff, who is a money manager with Downtown Brokers. Sarah pays an all-inclusive annual fee to the firm and Jeff manages her funds. She pays no trading costs or commissions. Which one of the following best describes this type of account? A) cash B) advisory C) margin D) mutual E) wrap
E
40) An investor with a long position in a security will make money: A) if the price of the security remains stable. B) only by shorting the security. C) if the price of the security declines. D) only if the security has been purchased on margin. E) if the price of the security increases.
E
52) Alfonso purchased 600 shares of Crosswinds, Inc., stock on 60 percent margin when the stock was selling for $37 a share. The stock is currently selling for $32 a share. What is his current equity position? A) $11,560 B) $8,880 C) $9,600 D) $7,680 E) $10,320 51)
E
54) Sun Lee purchased 1,500 shares of Franklin Metals stock for $16.80 a share. The stock was purchased with an initial margin of 65 percent. The maintenance margin is 30 percent. The stock is currently selling for $17.10 a share. What is the minimum dollar amount of equity that he must have in this stock today to avoid a margin call? A) $7,760 B) $7,808 C) $7,973 D) $7,544 E) $7,695
E
58) Stacy purchased 400 shares of stock for $38 a share. She sold those shares six months later for $34 a share. The initial margin requirement is 80 percent and the maintenance margin is 40 percent. Ignore margin interest and trading costs. If she purchased the shares for cash her holding period return would be percent as compared to percent if she had used margin. A) -11.63; -14.30 B) -10.12; -12.84 C) -11.63; -14.54 D) -12.27; -15.82 E) -10.53; -13.16
E
6) Which one of the following best describes the term "initial margin"? A) Amount of cash that must be paid when a broker issues a margin call B) Total loan amount offered to a customer by a brokerage firm to cover future purchases C) Amount of money that must be deposited to open a margin account with a broker D) Amount of money borrowed when a security is purchased E) Amount of cash that must be paid to purchase a security on margin
E
64) You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65 percent and the maintenance margin is 35 percent. What is the lowest the stock price can go before you receive a margin call? A) $14.54 B) $17.22 C) $9.27 D) $21.88 E) $26.49
E
65) Aaron purchased 300 shares of a technology stock for $16.80 a share. The initial margin requirement on this stock is 85 percent and the maintenance margin is 60 percent. What is the lowest the stock price can go before he receives a margin call? A) $4.43 B) $8.33 C) $5.55 D) $10.03 E) $6.30
E
68) Today, you are purchasing 100 shares of stock on margin. The purchase price per share is $35. The initial margin requirement is 70 percent and the maintenance margin is 30 percent. The call money rate is 4.5 percent and you are charged 1.6 percent over that rate. What will your rate of return be if you sell your shares one year from now for $37 a share? Ignore dividends. A) 7.49 percent B) 8.03 percent C) 7.18 percent D) 6.42 percent E) 5.55 percent
E
80) Today, you short sold 1,100 shares of Jasper Industrial stock at $48 a share. The initial margin is 60 percent and the maintenance margin is 30 percent. Which one of the following is correct concerning your account balance sheet for this transaction? A) You have a liability from the short position of $21,120. B) You have an asset of $31,680 from the sale proceeds. C) Your account equity is $21,120. D) Your initial margin deposit is $15,840. E) Your total assets are $84,480.
E
81) Mark short sold 500 shares of stock at $12.50 a share. The initial margin is 80 percent and the maintenance margin is 50 percent. The stock is currently selling for $9.80 a share. What is Matt's account equity at this time? Ignore margin interest. A) $4,590 B) $2,070 C) $8,950 D) $10,510 E) $6,350
E
82) You short sold 500 shares of Jasper stock at $41 a share at an initial margin of 60 percent. What is the highest the stock price can go before you receive a margin call if the maintenance margin is 40 percent? A) $56.90 B) $57.40 C) $47.08 D) $55.50 E) $46.86
E
9) This morning, Josh sold 800 shares of stock that he did not own. This sale is referred to as a: A) wrap trade. B) hypothecated sale. C) margin sale. D) long position. E) short sale.
E
92) Marcia purchased 100 shares of Hyde Foods stock on margin at a price of $35 a share. The initial margin requirement is 65 percent and the maintenance margin is 35 percent. What is the lowest the stock price can go before Marcia receives a margin call? A) $30.00 B) $33.00 C) $28.00 D) $24.50 E) $18.85
E
95) Rylee short sold 600 shares of stock at $16.25 a share. The initial margin is 75 percent and the maintenance margin is 50 percent. The stock is currently selling for $19.50 a share. What is Rylee's account equity at this time? Ignore margin interest. A) $3,590.25 B) $8,950.00 C) $10,510.35 D) $1,070.75 E) $5,362.50
E
