Series 65 Trading Securities

What is the term used to describe a person on the floor of a stock exchange who stands ready to buy or sell shares of specified stocks? A) Specialist. B) Floor broker. C) Arbitrageur. D) Market maker.

A) Specialist. This is the basic definition of the specialist. If the question had said the over-the-counter market, it would have been a market maker. A more correct answer would be the DMM (Designated Market Maker), but sometimes NASAA is slow to make changes.

An order to immediately buy or sell a security at the best available price is known as a: A) market order. B) short order. C) stop order. D) limit order.

A) market order. A market order to buy is an instruction to purchase a security at the lowest price available in the market; conversely, a market order to sell means to sell at the highest available price.

A client enters an order as follows: Sell stop 100 shares of LTC at 45 limit 45.50. Following the entry of that order, trades occur in the following sequence: 47; 46; 45.12; 44.97; 45.28; 45.97; 46.05. More than likely, the client received A) 44.97 B) 45.28 C) 46.05 D) 45.97

D) 45.97 This is really two orders. The first is to stop at 45. That is, once the stock trades at 45 or lower, enter the order. The second order is a sell, but with a limit of 45.50. So, the first time the stock hits 45 (or less), is the trade at 44.97. That triggers the sell limit. The next trade is at 45.28 and that is not acceptable to the limit order at 45.50. Since the limit order is saying, "get me 45.50 or higher," the 45.97 is an acceptable price.

Which of the following statements about short sales are TRUE? In a short sale, an investor sells securities she does not own. Risks can be minimized by confining short sales to cash accounts rather than margin accounts. In a short sale, an investor hopes that the price of a security will go down. A) I, II and III. B) II and III. C) I and II. D) I and III.

D) I and III. In a short sale, an investor sells securities she does not own. The investor must later purchase securities to cover the short sale. If the price of the securities drops before the sale must be covered, the investor profits. The investor realizes a loss, though, if the price of the securities goes up. Because borrowing is involved, all short sales must take place in margin accounts, never in a cash account.

An investor owns a long-term US Treasury bond with a 6% coupon and 21 years to maturity. The client wishes to sell and receives a quote from a dealer of 96.13. This number represents the A) discount B) offer price C) markdown D) bid price

D) bid price If you want to sell, the dealer will pay you his bid price. Had the question said the client wanted to buy, the quote would have been the offer (ask) price. What does the 6% coupon and the 21 years to maturity have to do with the question? Nothing. Knowing that treasuries are quoted in 32nds has nothing to do with it either. Also, the price quote is below 100 so it is at a discount, but the better answer is bid price because the question is referring to the quote.

Which of the following positions would create the most risk for an investor? A) Buy 100 shares of SSS and sell 1 SSS call. B) Buy 100 shares of SSS and buy 1 SSS put. C) Sell short 100 shares of SSS and buy 1 SSS call. D) Sell short 100 shares of SSS and sell 1 SSS put.

D): Sell short 100 shares of SSS and sell 1 SSS put. A short sale of SSS stock has unlimited loss potential. Selling a put obligates the customer to buy the stock at the strike price in return for premium. A short sale coupled with a sale of a put is equivalent to selling an uncovered call and creates the most risk.

Which of the following orders may be used to acquire a security at a specific price or better? A buy stop limit. I. A buy limit. II. A sell stop. III.A sell limit. A) II and III. B) I and II. C) II and IV. D) I and III.

The correct answer was: I and II. Only buy orders can acquire stock. Only buy limit orders (or buy stop orders with a limit attached) can acquire stock at a specific price or better.

An investor has her agent enter a sell stop order at 60, limit 60. Following the order entry, trades occur at 62.12, 60, 59.95, 60.06, 61. More than likely, the investor received: A) 60.06 B) 61 C) 59.95 D) 60

A) 60.06 This is really two orders. The first is to "stop" at 60. That is, once the stock trades at 60 or lower, enter my order. That second order is a sell, but with a limit of 60. So, the first time the stock hits 60 (or less), is the trade at 60. That triggers the sell limit. The next trade is a 59.95. Since the limit order is saying, "Get me 60 or higher, the 59.95 is not an acceptable price." But, the next trade, 60.06 will meet the client's goal of receiving no less than 60.

Mr. Donaldson is short 100 XYZ at $80 and has entered a buy stop XYZ at 82.50 GTC. The current market value for XYZ is $76. A favorable report is released, and XYZ starts to rally. Mr. Donaldson wants to cover immediately. The order ticket should be written as: A) Buy 100 XYZ at 76 stop; cancel buy 100 at 82.50 stop GTC. B) Sell short exempt 100 XYZ at market. C) Sell 100 XYZ at market. D) Buy 100 XYZ at market; cancel buy 100 at 82.50 stop GTC.

A) Buy 100 XYZ at market; cancel buy 100 at 82.50 stop GTC. To change an open order, the open order must be canceled and a new order must be entered. In this case, Mr. Donaldson wants to cover it immediately, which means at the market regardless of the price. As such, he would not enter another stop order; he would enter a market order and cancel the existing stop order.

Which of the following could accelerate a rise in a bull market? A) Buy stop. B) Sell limit. C) Sell stop. D) Buy limit.

A) Buy stop. Buy stop orders are placed above the market and as prices increase, the stops are hit creating additional buying.

What is the name given to an order to purchase or sell a stock where the investor has specified a price? A) An all or none order. B) A limit order. C) A market order. D) A discretionary order.

B) A limit order. The distinguishing feature of a limit order is that the investor sets a specific price limit. In the case of a buy limit, it is the maximum price he is willing to pay; in the case of a sell limit, it is the lowest price he is willing to accept. Although an all or none order does specify a price, it is categorized as a type of limit order so you must choose the most all encompassing answer.

Which of the following takes place on the New York Stock Exchange? A) Buying and selling stocks on the over-the-counter (OTC) market. B) Buying and selling stocks on the secondary market. C) Buying and selling of Nasdaq stocks. D) Buying and selling stocks on the primary market.

B) Buying and selling stocks on the secondary market. The secondary market is the market in which securities are traded after they are issued to the public. The secondary market takes place on exchanges, such as the New York Stock Exchange (NYSE), and on the over-the-counter (OTC) market. The OTC market is the market for securities that are not traded on an exchange.

Which of the following takes place on the New York Stock Exchange? A) Buying and selling stocks on the over-the-counter (OTC) market. B) Buying and selling stocks on the secondary market. C) Buying and selling of Nasdaq stocks. D) Buying and selling stocks on the primary market.

B)Buying and selling stocks on the secondary market. The secondary market is the market in which securities are traded after they are issued to the public. The secondary market takes place on exchanges, such as the New York Stock Exchange (NYSE), and on the over-the-counter (OTC) market. The OTC market is the market for securities that are not traded on an exchange.

Which of the following is an order to purchase at higher than the current market? A) A buy, immediate or cancel. B) A buy, fill or kill. C) A buy stop. D) A buy limit.

C) A buy stop. Buy stop orders are entered above the current market value of the stock.

An investor owns a long-term U.S. Treasury bond with a 5% coupon and 15 years to maturity. The client wishes to sell and receives a quote from a dealer of 104.22. This number represents the: A) yield to maturity. B) offer price. C) bid price. D) premium.

C) bid price. If you are looking to sell, the dealer will pay you his bid price. Had the question said the client wanted to buy, then the quote would have been the offer (ask) price. What does the 5% coupon and the 15 years to maturity have to do with the question? NOTHING. And, knowing that treasuries are quoted in 32nds has nothing to do with it either. And, one more thing. The price quote is above 100 so it is at a premium, BUT, the better answer is bid price because the question is referring to the quote.