Ch. 1 and 3
On a given day a stock dealer maintains a bid price of $1,000.50 for a bond and an ask price of $1003.25. The dealer made 10 trades that totaled 500 bonds traded that day. What was the dealer's gross trading profit for this security?
$1,375
Barnegat Light sold 200,000 shares in an initial public offering. The underwriter's explicit fees were $90,000. The offering price for the shares was $35, but immediately upon issue, the share price jumped to $43. What is the best estimate of the total cost to Barnegat Light of the equity issue?
$1,690,000
You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible gain, ignoring transactions cost?
$10,000
The commission structure on a stock purchase is $20 plus $.02 per share. If you purchase four round lots of a stock selling for $56, what is your commission?
$28
You sell short 200 shares of Doggie Treats Inc. that are currently selling at $25 per share. You post the 50% margin required on the short sale. If your broker requires a 30% maintenance margin, at what stock price will you get a margin call? (You earn no interest on the funds in your margin account, and the firm does not pay any dividends.)
$28.85
An investor buys $8,000 worth of a stock priced at $40 per share using 50% initial margin. The broker charges 6% on the margin loan and requires a 30% maintenance margin. In 1 year the investor has interest payable and gets a margin call. At the time of the margin call the stock's price must have been ____.
$30.29
You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends, and ignore interest on the margin loan.)
$35.71
You sold short 300 shares of common stock at $30 per share. The initial margin is 50%. You must put up _________.
$4,500
Consider the following limit order book of a specialist. The last trade in the stock occurred at a price of $40. If a market buy order for 100 shares comes in, at what price will it be filled?
$40.25 or less
SIPC ensures investors against failure of a brokerage firm up to a limit of _______.
$500,000
You find that the bid and ask prices for a stock are $10.25 and $10.30, respectively. If you purchase or sell the stock, you must pay a flat commission of $25. If you buy 100 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars?
$55
You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you want to limit your loss to $2,500, you should place a stop-buy order at ____.
$62.50
The commission structure on a stock purchase is $50 plus $.03 per share. If you purchase 600 shares of a stock selling for $65, what is your commission?
$68
Assume you purchased 500 shares of XYZ common stock on margin at $40 per share from your broker. If the initial margin is 60%, the amount you borrowed from the broker is _________.
$8,000
You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65%, and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin.
43%
The margin requirement on a stock purchase is 25%. You fully use the margin allowed to purchase 100 shares of MSFT at $25. If the price drops to $22, what is your percentage loss?
48%
Privately held firms may have only _______ shareholders.
499
More than ______ of all trading is believed to be initiated by computer algorithms.
50%
Explicit costs of an IPO tend to be around ______ of the funds raised.
7%
____ is not a derivative security.
A share of common stock
Net worth represents _____ of the liabilities and net worth of commercial banks.
About 11%
The primary market where new security issues are offered to the public is a good example of _________.
a brokered market
The over-the-counter securities market is a good example of _________.
a dealer market
You hold 5,000 shares of the 1 million outstanding shares of Wealthy Wranglers common stock. You've just learned that the company plans to issue more shares, so that 2 million shares will be outstanding. This is called _____.
a seasoned equity offering
Which one of the following types of markets requires the greatest level of trading activity to be cost-effective?
continuous auction market
In ________ markets, participants post bid and ask prices at which they are willing to trade, but orders are not automatically executed by computer. ____________ execute trades for people other than themselves, and in _______________ markets a computer matches orders with an existing limit order book and executes the trades automatically.
dealer; Brokers; electronic
All major stock markets today are effectively _______________.
electronic trading systems
In a __________ underwriting arrangement, the underwriter assumes the full risk that shares may not be sold to the public at the stipulated offering price.
firm-commitment
According to multiple studies by Ritter, initial public offerings tend to exhibit __________ performance initially and __________ performance over the long term.
good; bad
The average depth of the limit order book is _____.
higher for the large stocks in the S&P 500 Index than for the smaller stocks in the Russell 2000 Index
When matching orders from the public, a specialist is required to use the _______.
highest outstanding bid price and lowest outstanding ask price
Purchases of new issues of stock take place _________.
in the primary market
The bulk of most initial public offerings (IPOs) of equity securities goes to ___________.
institutional investors
Underwriting is one of the services provided by _____.
investment bankers
An order to buy or sell a security at the current price is a ______________.
market order
If an investor uses the full amount of margin available, the equity in a margin account used for a stock purchase can be found as ________.
market value of the stock - amount owed on the margin loan
The SIPC was established by the ____.
none of these options
Transactions that do not involve the original issue of securities take place in _________.
secondary markets
You purchased XYZ stock at $50 per share. The stock is currently selling at $65. Your gains could be protected by placing a _________.
stop-loss order
If an investor places a _________ order, the stock will be sold if its price falls to the stipulated level. If an investor places a __________ order, the stock will be bought if its price rises above the stipulated level.
stop-loss; stop-buy
Initial margin requirements on stocks are set by _________.
the Federal Reserve
The largest nongovernmental regulator of securities firms in the United States is ________.
the Financial Industry Regulatory Authority
The term latency refers to _____.
the amount of time it takes to accept, process, and deliver a trading order.
The term inside quotes refers to _____.
the difference between the highest bid price and the lowest ask price in the limit order book.
The term "underwriting syndicate" describes _______.
the investment banks that participate in the underwriting
The bid-ask spread exists because of _______________.
the need for dealers to cover expenses and make a profit
A red herring becomes a prospectus when ____.
the preliminary registration statement is approved by the SEC
Initial public offerings (IPOs) are usually ___________ relative to the levels at which their prices stabilize after they begin trading in the secondary market.
underpriced
Under firm-commitment underwriting, the ______ assumes the full risk that the shares cannot be sold to the public at the stipulated offering price.
underwriter
You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible loss?
unlimited
Real assets in the economy include all but which one of the following?
Common Stock
The fully automated trade-execution system installed on the NYSE is called _____.
Direct +
Specialists try to maintain a narrow bid-ask spread because:
I and II only
Which of the following are true concerning short sales of exchange-listed stocks?
I and II only
Regulation NMS:
I and III only
The NYSE has lost market share to ECNs in recent years. Part of the NYSE's response to the growth of ECNs has been to:
I only
Restrictions on trading involving insider information apply to:
I, II, and III
The cost of buying and selling a stock includes:
I, II, and III
Trading on inside information is:
I, II, and III
Which of the following is (are) true about dark pools?
I, II, and III
In 2013, NYSE Euronext was acquired by _______.
ICE
Which one of the following statements about IPOs is not true?
IPOs generally provide superior long-term performance as compared to other stocks.
Rank the following types of markets from least integrated and organized to most integrated and organized:
IV, I, III, II
According to the Flow of Funds Accounts of the United States, the largest single asset of U.S. households is ___.
Real Estate
The __________ was established to protect investors from losses if their brokerage firms fail.
SIPC
The __________ system enables exchange members to send orders directly to a specialist over computer lines.
SUPERDOT
The ____ requires full disclosure of relevant information relating to the issue of new securities.
Securities Act of 1933
Which one of the following is a false statement regarding NYSE specialists?
Specialists cannot trade for their own accounts.
__________ often accompany short sales and are used to limit potential losses from the short position.
Stop-buy orders
What happened to the effective spread on trades when the SEC allowed the minimum tick size to move from one-eighth of a dollar to one-sixteenth of a dollar in 1997 and from one-sixteenth of a dollar to one cent in 2001?
The effective spread decreased in both cases.
The _________ price is the price at which a dealer is willing to purchase a security.
bid
The difference between the price at which a dealer is willing to buy and the price at which a dealer is willing to sell is called the _________.
bid-ask spread
The process of polling potential investors regarding their interest in a forthcoming initial public offering (IPO) is called ________.
book building
Maintenance requirements for margin accounts are set by ____.
brokerage firms
As a result of flash crashes, the SEC is trying circuit breakers that will halt trading for 5 minutes if large stocks' prices change by more than _____ in a 5-minute period.
10%
The market share held by the NYSE Arca system in February 2011 was approximately ____.
10%
In 2014, BATS advertised average latency times of approximately _______.
100 microseconds
An investor puts up $5,000 but borrows an equal amount of money from his broker to double the amount invested to $10,000. The broker charges 7% on the loan. The stock was originally purchased at $25 per share, and in 1 year the investor sells the stock for $28. The investor's rate of return was ____.
17%
According to SEC Rule 415 regarding shelf registration, firms can gradually sell securities to the public for __________ following initial registration.
2 years
You sell short 300 shares of Microsoft that are currently selling at $30 per share. You post the 50% margin required on the short sale. If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Microsoft is selling at $27? (Ignore any dividends.)
20%
An investor buys $16,000 worth of a stock priced at $20 per share using 60% initial margin. The broker charges 8% on the margin loan and requires a 35% maintenance margin. The stock pays a $.50-per-share dividend in 1 year, and then the stock is sold at $23 per share. What was the investor's rate of return?
23.83%
Approximately __________ of trades involving shares issued by firms listed on the New York Stock Exchange actually take place on the New York Stock Exchange.
25%
A level _____ subscriber to the NASDAQ system may enter bid and ask prices.
3
The market share held by the "Other" category (which includes dark pools) constitutes roughly ______% of trading volume in NYSE-listed shares.
30%
The NYSE acquired the ECN _______, and NASDAQ recently acquired the ECN ________.
Archipelago; Instinet
The non-European country with the highest average first-day returns in 2014 was _______.
Jordan
What was the result of high-frequency traders' leaving the market during the flash crash of 2010?
Market liquidity decreased.
According to the Flow of Funds Accounts of the United States, the largest liability of U.S. households is ________.
Mortgages
Which one of the following is not an example of a brokered market?
NASDAQ
The ______________ is the most important dealer market in the United States, and the ______________ is the most important auction market.
NASDAQ; NYSE
In 2008, the NASDAQ stock market merged with _____.
OMX, which operates seven Nordic and Baltic stock exchanges
Financial assets represent _____ of total assets of U.S. households.
Over 70%
Private placements can be advantageous, compared to public issue, because:
Private placements are cheaper to market than public issues.
The NYSE Hybrid Market allows _____.
brokers to send orders either to an electronic system or to a specialist
Advantages of ECNs over traditional markets include all but which one of the following?
ability to handle very large orders
Level 3 NASDAQ subscribers _____.
all of these options
The CFA Institute Standards of Professional Conduct require that members _____.
all of these options
The New York Stock Exchange is a good example of _________.
an auction market
The _________ price is the price at which a dealer is willing to sell a security.
ask
The inside quotes on a limit order book can be found ______.
at the top of the list
