FIN 3244 3
Which of the following statements about 12(b)-1 fees is False? a. 12(b)-1 fees are distribution and advertising fees that help increase the profits of mutual funds and their shareholders. b. 12(b)-1 fees are paid by some mutual fund shareholders, each year, which is some percentages of their total portfolio value? c. Shareholders may be unaware of 12(b)-1 fees since they're bundled together with liability costs that reduce shareholder returns. d. Mutual funs can advertise themselves as 'no-load' mutual funds and still charge a limited percentage of 12(b)-1 fees
12(b)-1 fees are distribution and advertising fees that help increase the profits of mutual funds and their shareholders.
An investor buys 50 shares of stock at $36 on an account with 60% initial margin requirements and a 25% maintenance margin. He has no other securities in his account. At what stock price will the investor likely get a margin call? a. 28.80 b. 19.20 c. 14.40 d. 9.60
19.20
Jack owns 180 shares of ABC common stock valued at $30 a share. ABC declares a 4-for-3 (4:3) stock split effective tomorrow. After the split, Jack will own: a. 360 shares valued at about $15.00 a share. b. 300 shares valued at about $18.00 a share. c. 240 shares valued at about $22.50 a share. d. 135 shares valued at about $40 a share
240 shares valued at about $22.50 a share.
Assume the action (first part of each answer) is the only one taken and that the stock price reaction (second part of each answer) is immediate (don't look 10 years later). Which of the following is TRUE? a. A firm pays out its usual cash divided; the immediate stock price is responsive to its rise. b. A firm makes a large stock repurchase; the immediate stock price response is to fall. c. A firm conducts a rights offering; the immediate impact on the firm's stock price is to rise. d. A firm does a spin-off; the immediate stock price response of the parent company (firm doing the spin off) is to fall.
A firm does a spin-off; the immediate stock price response of the parent company (firm doing the spin off) is to fall.
Assume the price of a stock you hold falls. Which of the following statements is True? a. You don't have an actual monetary loss unless you sell the stock. b. If you wait too long for the stocks price to rise, you have opportunity costs. c. A&B both true d. A&B both false
A&B both true
A firm's dividend policy is affected by: a. Its current cash position b. Its growth and investment opportunities c. The decision of its board of Directors d. All of the above
All of the above
Investors have different investment preferences because a. People have different investment goals. b. People have different levels of risk tolerance. c. People have different amounts of debt and income d. All of the above
All of the above
The investment value (intrinsic value) of a firm's common stock: a. Is based on assumptions about its future earnings b. Is the highest price an investor should be willing to pay for the firm's stock c. Can vary significantly, even between highly knowledgeable individuals d. All of the above
All of the above
Which of the following statements about short-selling is True? a. The fact that most stocks are held in 'street name' makes it possible to short-sell stocks. b. There is no specified length of time that an investor can remain in a short position. c. Short-selling is possible because common shares of a firm's stock are interchangeable d. All of the above
All of the above
Which of the following statements about taxes is TRUE? a. Short-term capital gains are taxed at a lower rate than long-term capital gains. b. Long-term capital gins are taxed at the same tax rate as ordinary income c. Qualified dividends are currently taxed at the short-term capital gains rate. d. Changes in IRS rules can change the definitions of long-term and short-term capital gains tax rates
Changes in IRS rules can change the definitions of long-term and short-term capital gains tax rates.
In a rights offering a. Existing stockholders can use 'rights' to buy newly issued shares without spending additional money. b. Existing shareholders can maintain their ownership position and level of corporate control, if they choose to do so. c. Existing shareholders lose nothing (remain whole) if they take no action. d. A firm's liabilities increase because 'rights offerings' add to a firm's debt.
Existing shareholders can maintain their ownership position and level of corporate control, if they choose to do so.
Which of the following is FALSE a. Technical analysts don't consider accounting measures, potential growth or a firm's intrinsic (investment) value when deciding weather to buy the firms stock b. If you are shorting stock that pays a dividend while you're in the short position, the dividend amount will be subtracted from your brokerage account. c. Firms that announce stock repurchases are legally required to make the stock repurchases. d. Preferred stock has characteristics of both debt and equity. 32. In a rights offering
Firms that announce stock repurchases are legally required to make the stock repurchases.
Preferred stock: a. Can be traded when it reaches maturity b. Typically pays a variable rate of interest. c. Typically provides a way for the founders of a firm to maintain control of it. d. Has dividend payments that get paid before the dividend payments of common stock.
Has dividend payments that get paid before the dividend payments of common stock.
Which of the following is unlikely to be a problem for mutual fund managers? a. Being forced to sell portfolio assets at a low price if too many shareholders redeem shares at the same time. b. Income restrictions as a result of the limited number of mutual fund shares they have to sell. c. Investing planning difficulties resulting from irregular cash flows in and out of the mutual fund. d. The inability to invest in small firms because of the large monetary sums they deal with.
Income restrictions as a result of the limited number of mutual fund shares they have to sell.
Which of the following is True a. Studies show that this year's highest performing mutual fund tends to be next years highest performing mutual fund. b. ETFs are poor choices for shareholders who want to do frequent trading c. A possible explanation for stock splits is that they call attention to firms that believe their shares are overvalued d. Index funds can have different levels of risk
Index funds can have different levels of risk
SIPC (securities investor protection company) a. a. Insures you against bad advice from your broker. b. Insures you against investment losses c. Insures you against losing stock shares held in street name if your brokerage firm goes bankrupt. d. Is an optional insurance you can purchase to cover margin accounts
Insures you against losing stock shares held in street name if your brokerage firm goes bankrupt.
You know that investment A had a higher return than investment B last year. Given this knowledge, you can safely assume: a. Investment A will have a higher return than Investment B in the coming year. b. Investment A is more liquid than investment B c. Investment B is less risky than investment A d. You have insufficient information to make assumptions about investment A and
Investment B is less risky than investment A
Which of the following statements about margin trading is correct? a. When you trade on margin, the equity in your accounts acts as collateral for a brokerage-provided loan b. Investors usually remain in margin positions for extended time periods c. There is no difference in the risk an investor takes if he buys stock on margin or if he pays the entire purchase in cash d. If $1,000 worth of stock is bought on 70% margin, the buyer must invest $300 cash.
Investors usually remain in margin positions for extended time periods
A back-end load: a. Is a fee charged by ETFs (exchange traded funds) b. Is a fee that typically declines over time until it disappears. c. Is a fee intended to add to the funds profits d. Is a fee primarily intended to increase the fund manager's pay
Is a fee that typically declines over time until it disappears.
You buy stock anticipating that its price will rise. You pay for the shares partly with borrowed money. You've taken a: a. Long position b. Short position c. Margined, long position d. Margined short position
Margined, long position
An order placed to sell 100 shares of XYZ stock at its best currently available price is called a: a. Limit order b. Market order c. Stop order d. Short-sale
Market order
Which of the following statements about mutual funds is true? a. The price of a mutual fund changes continually thought out the trading day b. The larger the size of a mutual fund (the more assets it has), the higher the net asset value (NAV) of the mutual funds share price. c. Mutual funds aren't taxed because they pass taxes thought to their shareholders for them to pay. d. Mutual funds are typically traded in the secondary market between investors.
Mutual funds aren't taxed because they pass taxes thought to their shareholders for them to pay.
You do not own shares of XYC corp. which currently trade at $27 a share. You determine its worth $25 per share. You're willing to buy it at that price, but no higher. IN this scenario which of the following makes sense to do? a. Place a limit order to buy around $26 b. Short sell the stock at $26 c. Place a stop order to buy around $26 d. None of the above orders make sense. (A, B and C are false)
None of the above orders make sense. (A, B and C are false)
One possible reason that a firm issues classified stock is to: a. Increase its share price b. Pay different dividend amounts to, or give different voting rights to some shareholders. c. Reduce the transaction costs imposed on it by the SEC d. Keep the identity of the institutional investors buying its stock anonymous
Pay different dividend amounts to, or give different voting rights to some shareholders.
Which of the following statements is True? a. Penny stocks can be traded on margin b. The federal reserve determines which stocks an investor can trade on margin. c. Scenario: an investor who bought stock on margin doesn't want to sell, despite the stock moving against him. If he keeps the stock, he should be aware he could lose more money than his initial investment. d. Margin trading requires borrowing securities.
Scenario: an investor who bought stock on margin doesn't want to sell, despite the stock moving against him. If he keeps the stock, he should be aware he could lose more money than his initial investment.
If an investor doesn't respond to a margin call, the brokerage house has the right to: a. Sell all the investors holdings and close his margin account. b. Sell enough of the investors holdings to bring the account back to the maintenance margin. c. Contact the securities and exchange commission for permission to take action against the investor. d. Do any of the above
Sell enough of the investors holdings to bring the account back to the maintenance margin.
Fact: an investor with no position in a firm, expects its stock price to fall within the next week. Which of the following strategies would result in a profit for the investor if his expectation is correct? a. Take a long position in the stock today b. Sell the stock short today
Sell the stock short today
Which of the following is a characteristic of short-selling? a. The amount of money you can potentially lose is limited. b. Short-selling involves selling stock shares you don't own. c. Short-selling involves borrowing money. d. When you short-sell, you want to buy height and sell low
Short-selling involves selling stock shares you don't own.
Which of the following statements regarding spin-offs is False? a. A spin-off creates a new, publically traded company without going through the IPO process. b. Since the market looks favorably on spin-offs, the stock price of the parent company initially rises. c. Once shares of a spin-off are publically traded their price is determined by supply and demand. d. During the spin-off process, shares of the spun-off firm simply appear in the brokerage accounts of the parent firm's shareholders.
Since the market looks favorably on spin-offs, the stock price of the parent company initially rises.
Which of the following statement is FALSE? a. A stock markets value is typically higher than its book value. b. A firm's book value is money left, belonging to a firm's common shareholders, after all firm assets are liquidated and firm liabilities are paid. c. Investors generally consider a stock's par value irrelevant when making buy/sell decisions. d. Stockbrokers charge fees to short-sell stocks in addition to their usual commission.
Stockbrokers charge fees to short-sell stocks in addition to their usual commission.
Which one of the following statements about common stock is False? a. Stocks don't have maturity dates b. Stockholders have a claim on a firm's earnings before other corporate obligations are paid. c. Although listed stocks are highly liquid, you can still lose money investing in them. d. The majority of common shares outstanding have an equal vote and represent an equal ownership position in a firm.
Stockholders have a claim on a firm's earnings before other corporate obligations are paid.
A stock you bought at $35 has a $10 paper (unrealized) gain. You've no reason to think the price will fall, but you're nervous the stock has risen too high, too fast. You don't want to lose too much of your gain if the stock prices fall, but you also want to give the stock a chance to rise higher. What should you place? a. Limit order to sell at $45 b. Limit order to sell at $42 c. Stop order to sell at $47 d. Stop order to sell at $43
Stop order to sell at $43.
Investors who act on emotions: a. Tend to make poor market-timing decisions b. Tend to make fewer trades than unemotional investors c. Tend to make higher profits than unemotional investors d. All of the above tend to be true
Tend to make poor market-timing decisions
One possible reason for a firm to split its stock is: a. The firm has insufficient funds to pay dividends. b. The firm wants to reduce its stock price, but retain shareholder value. c. The firm wants to decrease the number of its common shares outstanding d. The firm wants to increase the amount of treasury shares it holds
The firm wants to reduce its stock price, but retain shareholder value.
A firm repurchases its own stock. Which of the following is True? a. The number of its common shares outstanding remains unchanged. b. The firm pays a lower market price for its stock than other buyers pay c. The firm makes its stock shares more affordable to new investors d. The firm wants to return profits to its shareholders
The firm wants to return profits to its shareholders
If an investor has his margin account restricted a. The investor must increase his accounts value to the maintenance margin requirement or his stock will be sold. b. The investor must increase his accounts value to the initial margin requirement or his stock will be sold. c. The investor is not required to take any action at that time. d. The investor has three business days to pay-off his margin loans or stock in his portfolio will be sold.
The investor is not required to take any action at that time.
An investor holds stock in a firm prior to its ex-dividend day and continues holding it after its date of record. Which of the following will definitely happen? a. The investors stock price will rise on the ex-dividend and the investor will not receive the dividend. b. The investors stock price will rise on the date of record. c. The investors stock price will be lower by the exact dividend amount on the date of record, but the investors will receive the dividend. d. The investors will receive the dividend and the stock will be at whatever price the market determines on the date of record.
The investors stock price will be lower by the exact dividend amount on the date of record, but the investors will receive the dividend.
Research shows that the more frequently you buy and sell stock: a. The more transaction costs reduce your return. b. The more likely you are to 'beat the market' (do better than the average market return) c. The more diversified your portfolio will be.
The more transaction costs reduce your return.
Which one of the following statements is correct about a good 'til-cancelled order? a. You can place a market order that is good-'til-cancelled b. The order has no time limit and will remain in affect forever unless cancled by the customer. c. The order can help customers obtain a specific price without watching the market continuously. d. The order will be canceled at the end of the trading day if not executed.
The order can help customers obtain a specific price without watching the market continuously.
An investor places a market order to buy HAL when its price is $23.43. When the order reaches the trading floor, HAL is trading at $23.45. Which of the following is TRUE? a. The order will not be executed b. The order will execute at $23.45 c. The order will be recorded and will execute when the price drops to $23.43 d. The order will execute at $23.43
The order will execute at $23.45
Assume an ETF is selling at a higher price than the NAV (net asset value) of its underlying stock portfolio. Which of the following would bring the two values closer together? a. The sponsor would form more ETF creation units and the Authorized participant would sell the ETF shares in the market place. b. The AP would exchange ETF shares for stocks and then wait for the stock prices to rise before selling them in the marketplace c. The AP would receive portfolio stock shares from the sponsor and the AP would sell the ETF shares in the marketplace d. The sponsor would destroy ETF creation units and give portfolio stock shares back to the AP.
The sponsor would form more ETF creation units and the Authorized participant would sell the ETF shares in the market place.
Which on of the following statements about limit orders is TRUE? a. They always execute on the day they are placed b. They may not execute even if their states price condition is met. c. A limit-order-to-buy can execute slightly higher than the specified limit if the market is moving rapidly. d. Limit orders are suspended market orders.
They may not execute even if their states price condition is met.
You buy stock in a margin accounting using 100% margin. Which of the following is TRUE in this circumstance? a. You pay interest on the money you borrowed b. You'll get the same return you would have gotten if you'd bought the stock in a cash account. c. You'll likely get a margin call if the price of your stock drops too low. d. You'll magnify any potential losses
You'll get the same return you would have gotten if you'd bought the stock in a cash account.
If you trade stocks online, you should know that: a. Compared to other methods, this is generally an expensive way to trade stock. b. You can cancel an executed order if you make a submission error. c. Your trades execute slowly compared to the speed of trades made by institutional investors. d. You can cancel market orders.
Your trades execute slowly compared to the speed of trades made by institutional investors.
