Intermediate Investments

The New York Stock Exchange is an example of what type of market?

Auction market

Before 1971, all OTC quotations were recorded manually and published daily on

pink sheets

Suppose an investment company's assets have a market value of $500 million but hold liabilities of $50 million. If there are 2.5 million shares outstanding, then the NAV equals

$180

If a mutual fund that manages a portfolio of securities is worth $150 million, and the fund owes $9 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 (or cost per share)?

$28 per share

During a transaction in the secondary market, what percent of the sale price goes to the managers of the firm to use to grow the business?

0%

Which of the following statements is NOT true about prospectus? Prospectus is a description of the firm and the security it is issuing. A Red Herring is the final prospectus approved by the SEC. Prospectus is a statement filed with the SEC in its final form. The prospectus has been approved by the SEC

A red herring is the final prospectus approved by the sec

What did the NYSE acquire in 2006 that contributed to the changing of the effective spread in the market?

Archipelago Exchange

One advantage of ______ is the direct crossing of trades without using a broker-dealer system eliminates the bid-ask spread that otherwise would be incurred.

ECNs

True or false: A market specialist is a trader who makes a market in the shares of legally only one firm and who maintains a "fair and orderly market" by dealing personally in that market.

False

True or false: When private firms wish to raise funds, they sell shares directly to a large number of institutional or wealthy investors in a private placement.

False; a small number

True or false: By law, at least 10% of all proceeds from stock transactions in the secondary market go to the issuing company.

False; none

The most important overseer in the self-regulation of the securities market is the _______ ________ ________ ________, which is the largest nongovernmental regulator of all securities firms in the United States.

Financial Industry Regulatory Authority

Which of the following markets began as a dealers market but evolved to a trading system?

NASDAQ

Real Estate Investment Trusts (REITs) are best described as?

REITs are similar to a closed-end mutual funds, and invest in real estate or loans secured by real estate

What is the SEC rule that allow companies to sell shares directly to a small number of investors, forgoing the extensive and costly registration statement required of a public company?

Rule 144A

Which of the following statements does NOT correctly describe the Securities Act of 1933? State laws to outlaw fraud in security sales did not exist before the Securities Act of 1933 Requires registration of new securities and issuance of a prospectus that details the financial prospects of the firm. Requires full disclosure of relevant information relating to the issue of new securities. Due to the nature of this act, it is often referred to as the "truth in securities" law.

State laws to outlaw fraud in security sales did not exist before the Securities Act of 1933

An example of self-regulation among investment profession is

The CFA Institute standards of professional conduct

Which of the following statements is NOT true about the NASDAQ? The NASDAQ was originally organized to be more of a price quotation system, than a trading system. The NASDAQ requires direct negotiation for electronic execution of trades at quoted prices. NASDAQ was introduced in 1971 to link brokers and dealers in a computer network. Prior to the introduction of the NASDAQ, all of the over-the-counter quotations were recorded manually and published daily on so-called pink sheets.

The NASDAQ requires direct negotiation for electronic execution of trades at quoted prices

Which of the following statements does NOT describe ECNs? Direct crossing of trades without using a broker-dealer system eliminates the bid-ask spread that otherwise would be incurred. Investors are offered considerable anonymity in their trades. Trades are typically less than a penny per share. Trades are not executed quickly.

Trades are not executed quickly.

True or false: An informal network of brokers and dealers who negotiate sales of securities is called an "over-the-counter (OTC) market.

True

True or false: Dark pools are trading systems in which participants can buy or sell large blocks of securities without showing their hand. Not only are buyers and sellers in the dark pools hidden from the public, but even trades may not be reported.

True

True or false: Money pooled from many investors that is invested in a fixed portfolio of securities for the life of the fund is called a unit investment trust.

True

True or false: Regulations prohibit insider trading. It is illegal for anyone to transact in securities to profit from inside information, that is, private information held by officers, directors, or major stockholders that has not yet been divulged to the public.

True

True or false: The "ask price" is the minimum price that a seller of security is ready to accept.

True

True or false: The "bid price" is the price that a dealer is willing to pay for the purchase of a security.

True

True or false: The effective spread (measured in dollars per share) fell dramatically as the minimum tick size fell. (Value-weighted average of NYSE - listed shares)

True

What percentage of the U.S. market is believed to be initiated by computer algorithms?

about 50%

_________ trading is the use of computer programs to make trading decisions.

algorithmic

The marriage of electronic trading mechanisms with computer technology has had far-ranging impacts on trading strategies and tools. __________ trading delegates trading decisions to computer programs. ____________-frequency trading is a special class of trading in which computer programs initiate orders in tiny fractions of a second, far faster than any human could process the information driving the trade.

algorithmic; high

Which of the following is NOT true about the responsibilities of an Underwriter? An underwriter can only purchase securities from the issuing company for themselves. The underwriters may receive shares of common stock or other securities of the issuing firm as their compensation. The underwriters purchase the securities from the issuing company and then resell to the public. Underwriters are investment bankers that market stocks and bonds.

an underwriter can only purchase securities from the issuing company for themselves

What are trades where participants can anonymously buy or sell large blocks of securities?

block trading

The scandals of 2000-2002 centered largely on three broad practices. The Sarbanes-Oxley Act was passed by Congress in 2002 in response to these problems. Which of the following does NOT describe one of the practices that this act was to address? board of directors must be composed with at least two members of the companies management team. tainted securities research and recommendations put out to the public misleading financial statements and accounting practices allocations of shares in initial public offerings

board of directors must be composed with at least two members of the companies management team

In an ECN, orders that can be crossed (matched) will be automatically executed without the approval of a

broker

Define the type of markets where trading is active and brokers find it profitable to offer search services to buyers and sellers.

brokered markets

Taking advantage of the source of debt financing called broker's call loans is called:

buying on margin

Which of the following is not true regarding the globalization of stock markets? It has become very important for exchanges to provide the cheapest and most efficient mechanism by which trades can be executed and cleared. Companies need the ability to go beyond national borders when they wish to raise capital. Due to increased global demand, there are more limits on the securities that can be traded around the world. Due to the impact of electronic trading, securities markets have come under increasing pressure to make international alliances or mergers.

due to increased global demand, there are more limits on the securities that can be traded around the world

ECNs allows participants to post market and limit orders over computer networks. ECN stands for

electronic communication network

What is a likely catalyst for the increased pressure for international alliances or mergers?

electronic trading

Which of the following functions is NOT performed by Investment Companies. Professional management Higher transaction costs Record keeping and administration. Diversification and divisibility

higher transaction costs

In a specialist market, the _____ outstanding bid price and the _____ outstanding ask price "win" the trade.

highest, lowest

Select the answer that best fits in the sentence below.Large transactions ____________ 10,000 shares of stock are bought or sold are called blocks.

in which at least

Nonpublic knowledge about a corporation possessed by corporate officers, major owners and other individuals with privileged access to information about the firm is called ______ information

inside

Investment companies are financial _________ that collect funds from individual investors and invest these funds in a potentially wide range of securities or other assets.

intermediaries

The sale of newly issued securities on the primary market is often managed by

investment bankers

A limit buy order _____.

involves the purchase of shares at or below a specified price

What is the net asset value equal to?

it equals assets minus liabilities expressed on a per-share basis

Some intermediaries lack formal organization or regulation (i.e. unregulated) as investment companies but nevertheless serve similar functions. Which of the following is NOT an example of an unregulated intermediary? real estate investment trusts commingled funds hedge funds mutual funds

mutual funds

A ______ ______ instructs the broker to sell if and when the stock price rises above a specified limit.

limit sell

Because they trade large blocks of securities, investment companies can achieve

lower transaction costs

The ______ in a broker's call loan is the portion of the purchase price contributed by the investor.

margin

For investment companies, the value of each share is called

net asset value

When you purchase shares of stock in the secondary markets this causes the total number of outstanding shares to

not change

________ of assets in an investment company allows small investors to obtain the benefits of large-scale investing

pooling

Where are newly issued securities sold?

primary market

A ______ market is a market for new issues of securities. A _____ market is a market for already existing securities.

primary; secondary

During a public offering a preliminary registration statement that must be filed with SEC; this statement describes the issue and the prospects of the company. It is called the

prospectus

To form a unit investment trust, a brokerage firm buys a portfolio of securities which are deposited into a trust. The brokerage firm then sells to the public shares, or "units" in the trust, called

redeemable trust certificates

Units sold from a unit investment trust are typically referred to as

redeemable trust certificates

In 2002 accounting malpractice among other things prompted Congress to pass the ______ Act

sarbanes-oxley

The sale of shares not owned by the investor but borrowed through a broker and later purchased to replace the loan is called a

short sale

Which of the following statements is NOT true about a short sale? With a short sale, the order is reversed. First, you sell and then you buy the shares. You begin and end with no shares. A short sale allows investors to profit from a decline in a security's price. The short-seller anticipates the stock price will go up, and the shares will be purchased later at a lower price than it initially sold for. Short-sellers must not only replace the shares but also pay the lender of the security any dividends paid during the short sale.

the short-seller anticipates the stock price will go up, and the shares will be purchased later at a lower price than initially sold for

True or false: The Securities Exchange Act of 1934 was established to administer the provisions of the 1933 act. It also extended the disclosure principle of the 1933 act by requiring periodic disclosure of relevant financial information by firms with already-issued securities on secondary exchanges.

true

_____ is another name for an investment banker charged with the role of helping to manage public offering.

underwriter

High-frequency traders' profits rely on the

volume of trades

Which of the following does NOT describe a "closed-end" fund. When investors wish 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 for an annual fee. Investors who wish to cash out must sell their shares to other investors. Shares are traded on organized exchanges and can be purchased through brokers.

when investors wish to "cash out" their shares, they sell them back to the fund at net asset value