Chp. 3-4

Match the NASDAQ level with the description. A. Level 1 B. Level 2 C. Level 3 1. Receive only inside quotes (i.e., the best bid and ask prices) 2. Receive all bid and ask quotes but cannot enter their own quotes 3. Registered market makers that can enter and change bid-ask quotes continually and have the fastest execution of trades

A > 1 B > 2 C > 3

Match the ETF to its nickname. A. Spiders B. Diamonds C. Cubes D. WEBS 1. S&P 500 2. NASDAQ 100 3. Dow Jones Industrial Average 4. World Equity Benchmark Shares

A > 1 B > 3 C > 2 D > 4

Balanced funds hold ______. neither stocks nor bonds stocks bonds both stocks and bonds

both stocks and bonds

New electronic trading platforms such as MarketAxess, now exist directly to ____________ buyers and sellers.

connect

The value of mutual fund expenses paid by brokerage houses to investment managers "free of charge" in exchange for the investment managers' business are referred to as _____________ _____________.

soft dollars

When stock is issued to the public for the first time by a formerly privately owned company, it is referred to as the firm's _______________ _______________ _______________ or _______________.

initial public offering or IPO

The time it takes to accept, process, and deliver a trading order is the trade's __________.

latency

Match the term with the most correct statement. A. REIT B. equity trust C. mortgage trust 1. is a closed-end fund invested in real estate or loans secured by real estate 2. invests primarily in mortgage and construction loans 3. invests in real estate directly

A > 1 B > 3 C > 2

The difference between a dealer's bid and ask price is the ____________-____________ ____________.

bid-ask spread

A transaction of more than 10,000 shares of stock is referred to as a(n) ____________ trade.

block

The ratio of the trading activity of a portfolio to the assets of the portfolio is defined as portfolio _____________ rate.

turnover

The major governing legislation includes the Securities Act of ____________ and the Securities Exchange Act of ____________.

1933; 1934

Which statements are true of operating expenses? They are typically expressed as a percentage of assets under management and are assessed periodically. They are higher for index funds than actively managed funds. They include administrative expenses and advisory fees paid to the investment manager. Shareholders do not receive an explicit bill for them.

They are typically expressed as a percentage of assets under management and are assessed periodically. They include administrative expenses and advisory fees paid to the investment manager. Shareholders do not receive an explicit bill for them.

Which of the following statements are true about high-frequency trading? Trade execution times for high-frequency traders are measured in milliseconds or less. High-frequency traders co-locate at exchanges because the speed of light is too slow for them to be further away. High-frequency traders compete for trades each of which offers very large profits. High-frequency strategies often attempt to profit from bid-ask spreads.

Trade execution times for high-frequency traders are measured in milliseconds or less. High-frequency traders co-locate at exchanges because the speed of light is too slow for them to be further away. High-frequency strategies often attempt to profit from bid-ask spreads.

True of False: An investor who places a market order buys at the ask price and sells at the bid price.

True

True or False: A short sale allows investors to profit from a decline in a security's price.

True

True or False: Shelf registration refers to ready to be issued securities.

True

The Sarbanes-Oxley Act requires _________. limitation of compensation for corporate officers corporate officers to sign off on the firm's financial statements corporate officers not hold stock options independent financial experts to serve on audit committees

corporate officers to sign off on the firm's financial statements independent financial experts to serve on audit committees

Electronic trading networks where participants can anonymously buy or sell large blocks of securities are called ____________ ____________.

dark pools

A(n) _____________ broker provides a "no-frills" service that is limited to security trading and custody, margin loans, and short selling.

discount

An alternative to mutual funds that can be bought and sold on a stock exchange like a security and allows small investors to invest in a portfolios of assets is a(n) _____________-_____________ _____________.

exchange-traded funds (ETF)

A(n) _____________-end load is a commission or sales charge paid when you purchase mutual fund shares. A(n) _____________-end load is a redemption or exit fee incurred when your sell your mutual fund shares.

front; back

A subset of algorithmic trading that relies on computer programs to make extremely rapid decisions is ____________-____________ trading.

high frequency

By buying securities on margin, an investor ______ the upside potential and _______ the downside risk of an investment. increases; increases decreases; decreases decreases; increases increases; decreases

increases; increases

When officers, directors, major stockholders, or others who hold private inside information allowing them to benefit in the buying or selling of stock do so, it is referred to as _____________ _____________.

insider trading

Financial intermediaries that collect funds from individual investors and allocate those funds to a potentially wide range of securities or other assets are referred to collectively as ____________ companies.

investment

If an offering price exceeds NAV, then the fund is said to be carrying a _____________.

load

The sales charge on the purchase of some mutual funds is referred to as a(n) ______. ETF NAV REIT load

load

Index funds typically have ______ turnover than actively managed funds, which makes them typically ______ tax efficient lower; more higher; less higher; more lower; less

lower; more

When an investor borrows part of the purchase price of a stock from a broker, the portion of the purchase price contributed by the investor is the ____________ in the account.

margin

Investors can largely control the realization of their capital gains ______. only when managing their own portfolio only when investing in a mutual fund both when managing their own portfolios and when investing in a mutual fund neither when managing their own portfolio nor when investing in a mutual fund

only when managing their own portfolio

Dealers quote prices at which they are willing to buy or sell securities in an ____________-____________-____________ dealer market.

over-the-counter

The taxation of individual investors in a mutual fund rather than taxation of the fund itself is referred to as _____________-_____________ status under the U.S. tax code.

pass-through

A primary offering in which shares are sold directly to a small group of institutional or wealthy investors by a private firm is a ______________ ______________.

private placement

Companies whose shares are available for purchase to investors are referred to as ______. private corporations public companies publicly traded publicly listed

public companies publicly traded publicly listed

An equity offering (or new issue) is said to be ____________ when it is the sale of additional shares by a company that is already publicly traded.

seasoned

Trades in already existing ___________ take place in secondary market.

securities

The sale of shares not owned by the investor but borrowed through a broker and later repurchased to replace the loan is called a(n) _____________ sale.

short

Studies have found that the average mutual fund ______ passive indexes, and they have also found that the evidence for persistence of individual managerial performance is ______. outperforms; very strong underperforms; mixed outperforms; mixed underperforms; very strong

underperforms; mixed

Which statements are true about Rule 415 and its consequences? It was introduced in 1982. It allows securities to be sold on short notice, with little additional paperwork. Securities can be sold in small amounts, but will have substantial flotation costs. Registered securities are said to be "on the shelf."

It was introduced in 1982. It allows securities to be sold on short notice, with little additional paperwork. Registered securities are said to be "on the shelf."

The number of shareholders a company may have before being required to register its common stock with the SEC and file public reports was increased from 500 to 2,000 by the 2012 ______ Business Act. Jumpstart Our Sarbanes-Oxley Glass-Steagall Dodd-Frank

Jumpstart Our

Which formula is used to calculate the rate of return of a mutual fund? Define ICG as the income and capital gain distribution. Multiple choice question. NAV 0 − NAV 1 + ICG / NAV 0 NAV 1 − NAV 0 + ICG / NAV 0 NAV 0 − NAV 1 + ICG / NAV 1 NAV 1 − NAV 0 + ICG / NAV 1

NAV 1 − NAV 0 + ICG / NAV 0

Rank the exchanges by the market capitalization (i.e., value of firm equity) of the firms traded on them as of 2018. Shanghai NASDAQ OMX Japan London NYSE

NYSE NASDAQ OMX Japan Shanghai London

Which statements about bond trading are true? The NYSE has expanded its electronic bond-trading platforms, which is now called NYSE Bonds and is the largest centralized bond market. The majority of bond trading occurs in the OTC market among bond dealers, even for bonds that are actually listed on the NYSE. Corporate bonds have significantly more liquidity than stocks. Merrill Lynch, Salomon Smith Barney and Goldman Sachs are currently bond dealers.

The NYSE has expanded its electronic bond-trading platforms, which is now called NYSE Bonds and is the largest centralized bond market. The majority of bond trading occurs in the OTC market among bond dealers, even for bonds that are actually listed on the NYSE. Merrill Lynch, Salomon Smith Barney and Goldman Sachs are currently bond dealers.

Nonpublic knowledge about a corporation possessed by corporate officers, major owners, or other individuals with privileged access is _______________ _______________.

insider information

The value of a share in an investment company, calculated as assets minus liabilities on a per-share basis, is termed _____________ _____________ _____________.

net asset value

The New York Stock Exchange is an example of what type of market? Brokered market Dealer market Auction market Direct search market

Auction market

Which expenses have a smaller effect on an investor's total return from a mutual fund as the holding period increases? Operating expenses 12b-1 fees Back-end loads Front-end loads

Back-end loads Front-end loads

Which of the following statements does NOT describe The New York Stock Exchange (NYSE)? The NYSE is the largest U.S. stock exchange as measured by the market value of the companies listed on the exchange. Daily trading volume on the NYSE is about a million shares. In 2006 the NYSE merged with the Archipelago Exchange to form a publicly-held company called the NYSE Group. In 2007 the NYSE merged with the European exchange Euronext to form NYSE Euronext.

Daily trading volume on the NYSE is about a million shares.

Which type of market is the least organized? Direct search market Brokered market Dealer market Auction market

Direct search market

A computer-operated trading network offering an alternative to formal stock exchanges or dealer markets for trading securities is often referred to as an ______. OTC ECN IPO ETF

ECN

Identify the true statements about ETFs. ETFs trade continuously and can be sold short or purchased on margin. ETFs are often cheaper than mutual funds. ETFs offer a potential tax advantage over mutual funds. ETFs can be bought at no expense from no-load funds.

ETFs trade continuously and can be sold short or purchased on margin. ETFs are often cheaper than mutual funds. ETFs offer a potential tax advantage over mutual funds.

Which statements describe mutual funds? "Mutual fund" is the common name for a open-end investment company. They are private partnerships and subject to minimal regulation relative to other investment vehicles. It is the dominant investment company form today, accounting for 87% of investment company assets. They are typically open only to wealthy or institutional investors.

"Mutual fund" is the common name for a open-end investment company. It is the dominant investment company form today, accounting for 87% of investment company assets.

If a mutual fund that manages a portfolio of securities is worth $120 million, and the fund owes $4 million to its investment advisers and owes another $1 million for rent, wages due and miscellaneous expenses, and has 5 million shares, what is the net asset value? $25 per share $23 per share $30 per share $20 per share

$120-$4-$1 = $115 $115/$5 = $23 $23 per share

Match the law with its description. A. Securities Act of 1933 B. Securities Exchange Act of 1934 C. Securities Investor Protection Act of 1970 D. Dodd-Frank Wall Street Reform and Consumer Protection Act 1. Requires full disclosure of relevant information relating to the issue of new securities 2. Increased oversight of the U.S. financial system to increase its stability 3. Established the Securities and Exchange Commission 4. Established the Securities Investor Protection Corporation to protect investors from losses if their brokerage firms fail

A > 1 B > 3 C > 4 D > 2

Drag and drop the descriptions against the corresponding funds. A. Mutual funds B. Exchange-Traded Funds (ETFs) 1. They trade continuously through the day. 2. They only trade once per day. 3. They regularly generate capital gains even when not traded. 4. They may depart in price from NAV.

A > 2 & 3 B > 1 & 4

Match the investment company functions with their examples. A. Record keeping and administration B. Diversification and divisibility C. Professional management D. Lower transaction costs 1. Employ full-time securities analysts 2. Own many securities 3. Track capital gains for an investor 4. Purchase shares in large blocks

A > 3 B > 2 C > 1 D > 4

The Sarbanes-Oxley Act was passed by Congress in 2002 in response to which issues? Allocations of shares in initial public offerings Tainted securities research and recommendations put out to the public Misleading financial statements and accounting practices The subprime mortgage crisis and subsequent bailout of large financial institutions

Allocations of shares in initial public offerings Tainted securities research and recommendations put out to the public Misleading financial statements and accounting practices

Which of the following statements regarding exchanges is NOT correct? Companies want to be able to go beyond national boarders when desiring to raise capital Exchanges feel that 24-hour exchanges in global markets and platforms is not necessary due to security. It is important to provide the cheapest and most efficient mechanism to execute and clear trades.

Exchanges feel that 24-hour exchanges in global markets and platforms is not necessary due to security.

Which are services offered by full-service brokers? Withdrawing funds on a client's behalf Extending margin loans Providing buy and sell recommendations Trading for client accounts Holding securities for safekeeping

Extending margin loans Providing buy and sell recommendations Trading for client accounts Holding securities for safekeeping

True or False: A soft-dollar arrangement means that the stockbroker effectively collects the trading commission from the fund.

False

True or False: An example of an average latency time for CBOE Global Markets utilizing the BATS platform advertises times of.01 second.

False

True or False: Measuring portfolio risk properly and using measures such as the Wilshire 5000 index make the process straightforward.

False

In addition to government regulation, the securities market exercises considerable self-regulation. The most important overseer in this regard is the _____________ _____________ _____________ _____________, which is the largest nongovernmental regulator of all securities firms in the United States.

Financial Industry Regulatory Authority

The investment organization similar to a closed-end fund investing in real estate or loans secured by real estate is known by the acronym _____________.

REIT

_____________ _____________ are the common name for open-end investment companies accounting for 87% of investment company assets today.

Mutual funds

The U.S. stock market that provides an automated quotation system for the OTC market, showing current bid-ask prices for thousands of stocks, is the _____________. NASDAQ BATS Direct Edge NYSE

NASDAQ

The NYSE Euronext acquired the American Stock Exchange in 2008 to focus on small firms and was renamed ____________ ____________.

NYSE Amex

Which statements describe closed-end managed investment companies? When investors want to cash out their shares, they sell them back to the fund at net asset value. The fund's board of directors hires a management company to manage the portfolio. Shares are traded on organized exchanges and can be purchased through brokers. Shares may not be redeemed, but are instead traded at prices that can differ from net asset value.

The fund's board of directors hires a management company to manage the portfolio. Shares are traded on organized exchanges and can be purchased through brokers. Shares may not be redeemed, but are instead traded at prices that can differ from net asset value.

Which of the following statements regarding self-regulation is correct. The most important overseer is the Fintech institutions The securities market exercises considerable self and government regulation. CFA Institute trains future chief financial administrators The purpose of self-regulation is to make more money.

The securities market exercises considerable self and government regulation.

Which statements describe open-end managed investment companies? They are commonly referred to as "mutual funds." Shares may not be redeemed, but are instead traded at prices that can differ from net asset value. When investors want to cash out their shares, they sell them back to the fund at net asset value. The fund's board of directors hires a management company to manage the portfolio.

They are commonly referred to as "mutual funds." When investors want to cash out their shares, they sell them back to the fund at net asset value. The fund's board of directors hires a management company to manage the portfolio.

Which of the following statements is NOT true about money market funds for non-institutional investors. They invest in securities such as commercial paper, repurchase agreements and certificates of deposit. They generate frequent capital gains and losses. Money market funds usually offer check-writing features and net asset value is fixed at $1 per share. The average maturity of money market mutual funds tend to be a bit more than one month.

They generate frequent capital gains and losses.