11.6

A ________ is a trading order that expires at the end of the trading day during which it was made. A) day order B) market order C) limit order D) GTC order E) fill-or-kill order

A) day order

Investors who trade with a very short time horizon, generally holding onto stocks for only a few hours, are called A) day traders. B) movement traders. C) hedge traders. D) deep discount traders. E) none of the above.

A) day traders.

A(n) ________ account represents the money over which you give a broker power to trade for you. A) discretionary B) discount C) stock purchasing D) securities E) indemnity

A) discretionary

Day trading has been called A) ʺa trading method for transferring wealth from unsophisticated investors to sophisticated investors.ʺ B) ʺa trading method for transferring wealth from sophisticated investors to unsophisticated investors.ʺ C) ʺthe safest, most conservative trading method.ʺ D) ʺthe long-term investorsʹ preferred trading method.ʺ

A) ʺa trading method for transferring wealth from unsophisticated investors to sophisticated investors.ʺ

Which of the following purchase orders indicates that you want to buy or sell immediately? A) Limit order B) Market order C) Day order D) Open order

B) Market order

You purchased some stock last month for $50 per share. Today the stock closed at $80 per share. You would like to protect the profit that you have made on this stock but you really donʹt want to sell it in case it continues to rise in price. What should you do? A) Place a market order on this stock C) Place a protect order on this stock B) Place a stop-loss order on this stock D) None of the above

B) Place a stop-loss order

You have decided to give your stockbroker the power to make trades in the market on your behalf, without notifying you of the trades prior to execution. This is an example of A) a power agreement. C) an independent account. B) a discretionary account. D) none of the above.

B) a discretionary account.

A(n) ________ account represents the money or investments you have at a brokerage firm. A) discretionary C) stock purchasing B) brokerage D) indemnity

B) brokerage

investors with ________ accounts pay in full for their security purchases. A) margin C) initial margin B) cash D) maintenance margin

B) cash

You specify that your trade is to be made only at a certain price or better. You are placing a(n) A) stop order. B) limit order. C) market order. D) open order. E) closed order.

B) limit order

In addition to your own investment, you borrowed money from your broker to purchase shares of a stock. Your broker called to tell you that the price of your stock has fallen and you now need to contribute more of your own money to keep the account at the minimum level. This is termed a(n) A) account validation. B) margin call. C) minimum validation. D) stop-loss order. E) none of the above.

B) margin call.

A ________ is an order to buy or sell a set number of securities immediately at the best price available. A) day order B) market order C) limit order D) prompt order E) none of the above

B) market order

A group of 100 shares of common stock is referred to as a(n) A) odd lot. B) round lot. C) even lot. D) square lot. E) none of the above.

B) round lot.

You have decided to borrow stock from your broker, sell it in the market, and then (you hope) replace the borrowed shares when the price drops in the future. This is an example of A) borrowed selling. B) selling short. C) reverse hedging. D) IOU trading. E) none of the above.

B) selling short.

A(n) ________ order is an order to sell if the price drops below a specified level or buy if the price climbs above a specified level. A) good-till-cancelled B) stop C) limit D) market E) open

B) stop

Assume you have a margin account with a 50% initial margin. You purchase 100 shares of stock at $80 per share. The price increases to $100 per share. What is the net value of your investment (margin) now? A) $10,000 B) $8,000 C) $6,000 D) $5,000 E) $2,000

C) $6,000

The price at which an individual is willing to sell a security is called the A) set price. B) bid price. C) ask on offer price. D) take price. E) none of the above.

C) ask on offer price.

A ________ is an order that specifies a securities trade is to be made only at a certain price or better. A) day order B) market order C) limit order D) GTC order E) none of the above

C) limit order

Amy and Bob have decided to borrow a portion of the purchase price of stocks from their broker. They will then have a ________ account. A) cash B) round lot C) margin D) debtor E) combination

C) margin

Barbara Ann ordered 50 shares of stock, which is called a(n) ________ lot on the NYSE. A) discretionary B) square C) odd D) round E) even

C) odd

Sally is attempting to purchase 88 shares of Googleʹs stock. Sally is purchasing a(n) ________ lot of stocks. A) square B) round C) odd D) margin E) cannot determine from the information provided

C) odd

You want to buy stock in a dynamic electronics firm. You place an order that cannot be completely filled the first day, so you ask for a(n) A) second chance. B) market order. C) open order. D) day order. E) extended order.

C) open order.

A ________ is a member of an exchange who oversees the trading in one or more stocks and is generally responsible for maintaining a ʺfair and orderlyʺ market in those stocks by purchasing or releasing stocks into the market. A) floor trader B) day trader C) specialist D) monitor E) none of the above

C) specialist

You believe that the stock of MoabBikes will soon fall from its current price of $25 per share. You short 1,000 shares with your broker who has a 50% margin requirement. The price falls to $15 per share, but not before it pays a $5 dividend per share. Your commissions and other charges totaled $50. What was your total profit? A) $5 B) $2,450 C) $2,500 D) $4,950 E) $9,950

D) $4,950

You have been watching a stock that has dramatically increased in price for the last several days. Today it closed at $50 per share. You want to purchase this stock in the morning using your online brokerage account. You are willing to pay up to $53 a share but no higher. What type of purchase order should you use? A) A stop-loss order C) A market order B) A good-til-cancel order D) A limit order

D) A limit order

Why does it cost so much to trade with a full service broker? A) Full service brokers offer stock research and investment advice. B) Full service brokers offer many different customer services. C) Full service brokers provide a one-on-one personal relationship with the customer. D) All of the above are correct.

D) All of the above are correct.

What type of broker can protect your investments from systematic risk? A) Online broker C) Full service broker B) Discount broker D) None of the above.

D) None of the above.

Your next-door neighbor, a kind, elderly lady, just discovered that her stock account had been excessively traded in an inappropriate manner, mainly to generate excess commissions. This is an example of A) account theft. B) black market trading. C) high turnover trading. D) churning. E) none of the above.

D) churning.

Insider trading is both unfair and illegal. It occurs when officers, directors, major stockholders, or others trade securities while A) intoxicated. B) in prison. C) in possession of illegal drugs. D) in possession of ʺmaterialʺ nonpublic security information. E) having relatives working at the firm whose stock they are trading.

D) in possession of ʺmaterialʺ nonpublic security information.

All of the following are ordering alternatives that specify the timeframe within which you want your order filled exceptA) GTC order. C) open order. B) fill-or-kill order. D) limit order.

D) limit order.

Barney Q. Hopkins borrows stock from his broker (short selling) with the goal of ________ and ________. A) buying low; selling later B) buying low; selling low C) buying high; selling low D) selling high; later buying low E) borrowing money; buying low

D) selling high; later buying low

A ________ is an order to sell a security if the price drops below a specified level or to buy if the price climbs above a specified level. A) GTC order B) market order C) fill-or-kill order D) stop-loss order E) none of the above

D) stop-loss order

Assume you have a margin account with a 50% initial margin. You purchase 100 shares of Microsoft at $150 per share. The price increases to $175 per share. What is the net value of your investment (margin) now? A) $17,500 B) $15,000 C) $ 7,500 D) $ 3,750 E) None of the above

E) None of the above

What is the purpose of a margin account and using margin to purchase stocks? A) A margin account allows you to purchase stocks without using any of your own money. B) A margin account allows you to purchase more shares than you could afford to purchase using only your own money. C) Using margin to purchase more shares gives you the potential to earn a higher return on your investment. D) All of the above are correct. E) Only B and C are correct.

E) Only B and C are correct.