mfin 15 ch 4 & 5

Kathy Smith has a margin account with a balance of $60,000. Initial margin requirements are 80 percent, and Jackson Industries is currently selling at $40 per share. Refer to Exhibit 4.3. What is Kathy's profit if Jackson's price rises to $50? A. $18,750 B. $15,750 C. $55,000 D. $37,750 E. $28,570

A. $18,750

90. Suppose you purchase 200 shares of Best Hat Corporation at $52 a share by making a margin deposit of 50%. If the maintenance margin is 30%, at what price will you receive a margin call? A. $37.14 B. $37.95 C. $38.23 D. $38.76 E. $39.42

A. $37.14

77. Suppose you buy a round lot of HS Inc. stock on 55% margin when it is selling at $40 a share. The broker charges a 10 percent annual interest rate and commissions are 4 percent of the total stock value on both the purchase and the sale. If at year end you receive a $0.90 per share dividend and sell the stock for 35 5/8, what is your rate of return on the investment? A. -35.17% B. -21.84% C. 14.74% D. 21.84% E. 35.17%

A. -35.17%

You decide to sell short 200 shares of XCorp stock at a price of $75. Your margin deposit is 65 percent. Commission on the sale is 1.25%. While you are short, the stock pays a $1.75 per share dividend. Interest on margin debt is 5.25% per year. Refer to Exhibit 4.6. Suppose at the end of one year XCorp is selling at $90 per share and you cover your short position at this price. What is your rate of return on the investment? (Assume a 1.25% commission on the purchase.) A. -40.64% B. -25.53% C. 5.21% D. 72.7% E. -71.2%

A. -40.64%

78. Suppose you buy a round lot of Altman Industries stock on 50% margin when it is selling at $35 a share. The broker charges a 10 percent annual interest rate and commissions are 5 percent of the total stock value on both the purchase and the sale. If at year end you receive a $1.00 per share dividend and sell the stock for $42.63, what is your rate of return on the investment? A. 15.58% B. 11.84% C. 14.74% D. 21.84% E. 28.38%

A. 15.58%

Kathy Smith has a margin account with a balance of $60,000. Initial margin requirements are 80 percent, and Jackson Industries is currently selling at $40 per share. Refer to Exhibit 4.3. How many shares of Jackson can Kathy buy? A. 1875 B. 1500 C. 1750 D. 1200 E. None of the above

A. 1875

Jackie has a margin account with a balance of $150,000. The initial margin deposit is 60 percent and Turtle Industries is currently selling at $50 per share. Refer to Exhibit 4.1. How many shares of Turtle can Jackie purchase? A. 5,000 B. 3,000 C. 1,800 D. 1,200 E. None of the above

A. 5,000

40. Which of the following is not a function of the specialist? A. Assists the Federal Reserve in controlling the money supply B. Acts as a broker who handles the limit orders or special orders placed with member brokers C. Buys and sells securities in order to stabilize the market D. Acts as a dealer in assigned stocks to maintain a fair and orderly market E. All of the above are functions of a specialist

A. Assists the Federal Reserve in controlling the money supply

38. An order that specifies the highest buy or lowest sell price is a A. Limit order. B. Short sale. C. Market order. D. Margin call. E. Stop loss.

A. Limit order.

59. Investors can leverage their stock transactions with the use of A. Margin orders B. Stop loss orders C. Limit orders D. Market orders E. Specialists

A. Margin orders

46. In a negotiated bid, the underwriter carries out the following service(s) A. Origination, risk-bearing, and distribution. B. Origination and risk-bearing. C. Risk-bearing and distribution. D. Origination and distribution. E. Risk-bearing and distribution.

A. Origination, risk-bearing, and distribution.

50. Trading in the secondary markets for U.S. Government and municipal bonds A. Takes place through a network of primary dealers B. Takes place over the counter by dealers who buy and sell on their own account C. Takes place on the NYSE bond annex D. All of the above E. None of the above

A. Takes place through a network of primary dealers

55. Secondary markets are important because A. The prevailing market price of securities is determined in the secondary market B. It has an impact on price stability C. It has an impact on price continuity D. All of the above E. None of the above

A. The prevailing market price of securities is determined in the secondary market

36. Which of the following is not a secondary equity market? A. Treasury market B. National exchanges C. Regional exchanges D. Over-the-counter market E. All of the above are secondary equity markets.

A. Treasury market

11. The Ryan Treasury Index is an example of a a. Bond market indicator series. b. Stock market indicator series. c. Composite security market series. d. World market series. e. Commodity market series.

ANS: A

13. Which of the following is true of the various market index series? a. A low correlation exists between the U.S. indexes and those of Japan. b. The NYSE series have higher rates of return and risk measures than the AMEX and OTC series. c. A low correlation exists between alternative series that include almost all NYSE stocks. d. A low correlation exists between alternative bond series. e. None of the above

ANS: A

17. Studies of correlations among monthly U.S. bond price index returns have found: a. Low correlations between investment grade bonds and high yield bonds b. High correlations between investment grade bonds and high yield bonds c. Low correlations between various investment grade bond indexes d. Negative correlations between investment grade bonds and high yield bonds e. None of the above

ANS: A

2. A properly selected sample for use in constructing a market indicator series will consider the sample's source, size and a. Breadth. b. Average beta. c. Value. d. Variability. e. Dividend record.

ANS: A

3. In a price weighted average stock market indicator series, the following type of stock has the greatest influence a. The stock with the highest price b. The stock with the lowest price c. The stock with the highest market capitalization d. The stock with the lowest market capitalization e. The stock with the highest P/E ratio

ANS: A

4. What effect does a stock substitution or stock split have on a price-weighted series? a. Index remains the same, divisor will increase/decrease. b. Divisor remains the same, index will increase/decrease. c. Index and divisor will both remain the same. d. Index and divisor will both reflect the changes (immediately). e. Not enough information is provided.

ANS: A

12. Studies of correlations among monthly equity price index returns have found: a. Low correlations between various U.S. equity indexes b. High correlations between various U.S. equity indexes c. High correlations between U.S. and non-U.S. equity indexes d. Negative correlations between various U.S. equity indexes e. None of the above

ANS: B

18. Index movements are influenced by differential prices of the components in a a. Equally-weighted index. b. Price-weighted index. c. Unweighted index. d. Value-weighted index. e. All of the above

ANS: B

20. The actual index movements are typically based on the arithmetic mean of the percent changes in price or value for the stocks in the a. Price-weighted index. b. Unweighted index. c. Value-weighted index. d. None of the above e. All of the above

ANS: B

5. Which of the following is not a value-weighted series? a. NASDAQ Industrial Index b. Dow Jones Industrial Average c. Wilshire 5000 Equity Index d. American Stock Exchange Series e. NASDAQ Composite Index

ANS: B

6. An example of a value weighted stock market indicator series is the a. Dow Jones Industrial Average. b. Nikkei Dow Jones Average. c. S & P 500 Index. d. Value Line Index. e. Shearson Lehman Hutton Index.

ANS: C

7. In a value weighted index a. Exchange rate fluctuations have a large impact. b. Exchange rate fluctuations have a small impact. c. Large companies have a disproportionate influence on the index. d. Small companies have an exaggerated effect on the index. e. None of the above

ANS: C

10. Which of the following is not a global equity indicator series? a. Morgan Stanley Capital International Indexes b. Dow Jones World Stock Index c. FT/S & P-Actuaries World Indexes d. Merrill Lynch-Wilshire World Indexes e. None of the above (that is, each is a global equity indicator series)

ANS: D

19. Which index is created by first deriving the initial total market value of all stocks used in the index? a. Equally-weighted index. b. Price-weighted index. c. Unweighted index. d. Value-weighted index. e. All of the above

ANS: D

9. The Value Line Composite Average is calculated using the ____ of percentage price changes. a. arithmetic average b. harmonic average c. expected value d. geometric average e. logarithmic average

ANS: D

1. Which of the following is not a use of security market indicator series? a. To use as a benchmark of individual portfolio performance b. To develop an index portfolio c. To determine factors influencing aggregate security price movements d. To use in the measurement of systematic risk e. To use in the measurement of diversifiable risk

ANS: E

14. Which of the following are factors that make it difficult to create and maintain a bond index? a. The universe of bonds is broader than stocks. b. The universe of bonds is constantly changing due to new issues, bond maturities, calls, and bond sinking funds. c. It is difficult to derive value, up-to-date prices. d. Choices a and c e. All of the above

ANS: E

15. Which of the following is not a U.S. investment-grade bond index? a. Merrill Lynch b. Ryan Treasury c. Salomon Brothers d. Lehman Brothers e. None of the above (that is, all are U.S. investment-grade bond indexes)

ANS: E

8. Of the following indices, which includes the most comprehensive list of stocks? a. New York Exchange Index b. Standard and Poor's Index c. American Stock Exchange Index d. NASDAQ Series Index e. Wilshire Equity Index

ANS: E

11. Bond-market indicator series have been around much longer than stock-market indicator series.

ANS: F

12. It is easier to construct an indicator series for bonds because of their relatively stable returns pattern.

ANS: F

15. There are no composite series currently available that will measure the performance of all securities (i.e. stocks and bonds) in a given country.

ANS: F

16. The NYSE series should have higher rates of return and risk measures than the AMEX and OTC series.

ANS: F

20. A bond market index is easier to create than a stock market index because the universe of bonds is much broader than that of stocks.

ANS: F

22. The Standard & Poor's International Index consists of 3 international, 19 national, and 38 international industry indexes.

ANS: F

3. A price weighted series is disproportionately influenced by larger capitalization companies.

ANS: F

4. The Dow Jones Industrial Average is a value weighted average.

ANS: F

7. Unlike the Dow Jones Industrial Average, the Nikkei-Dow Jones Average is price weighted.

ANS: F

9. The New York Stock Exchange Index is based on a sample of all of the New York Stock Exchange stocks.

ANS: F

1. The general purpose of a market indicator series is to provide an overall indication of aggregate market changes or movements.

ANS: T

10. An equally weighted indicator series is also known as an unweighted indicator series.

ANS: T

13. The major U.S. stock indexes are highly correlated.

ANS: T

14. To solve comparability problems across countries, global equity indexes with consistent sample selection, weighting and computational procedure have been developed.

ANS: T

17. There is a high correlation between the Wilshire 5000 index and the alternative NYSE series (S&P 500 and the NYSE), representing the substantial influence of large NYSE stocks on the Wilshire 5000 index.

ANS: T

18. The low correlations between the U.S. and Japan, confirm the benefit of global diversification.

ANS: T

19. The correlations among the U.S. investment-grade-bond series were very high because all rates of return for investment-grade bonds over time are impacted by common macroeconomic variables.

ANS: T

2. An aggregate market index can be used as a benchmark to judge the performance of professional money managers.

ANS: T

21. The Standard & Poor's 500 index is an example of a value weighted index.

ANS: T

5. A two for one stock split causes the divisor in a price-weighted series to decline.

ANS: T

6. The Dow Jones Industrial Average has been criticized for being blue-chip biased.

ANS: T

8. A value weighted index automatically adjusts for stock splits.

ANS: T

You decide to sell 100 shares of Davis Industries short when it is selling at its yearly high of $35. Your broker tells you that your margin requirement is 55 percent and that the commission on the sale is $15. While you are short, Davis pays a $0.75 per share dividend. At the end of one year you buy your Davis shares (cover your short sale) at $30 and are charged a commission of $15 and a 6 percent interest rate. Refer to Exhibit 4.4. What is your dollar return on the investment? A. $130.50 B. $300.50 C. $100.00 D. $1,773.75 E. $3,500.00

B. $300.50

Jackie has a margin account with a balance of $150,000. The initial margin deposit is 60 percent and Turtle Industries is currently selling at $50 per share. Refer to Exhibit 4.1. What is Jackie's profit/loss if Turtle's price after one year is $40? A. $50,000 B. -$50,000 C. $100,000 D. -$100,000 E. None of the above

B. -$50,000

Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%. Refer to Exhibit 4.7. At the end of one year shares of RossCorp stock are selling for $35 per share and the company paid dividends of $0.85 per share. Assuming that you paid the full cost of the purchase, what is your rate of return if you sell RossCorp stock? A. -33.05% B. -23.42% C. 23.42% D. 33.05% E. -25.35%

B. -23.42%

Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%. Refer to Exhibit 4.7. At the end of one year shares of RossCorp stock are selling for $35 per share and the company paid dividends of $0.85 per share. Assuming that you borrowed 25% of cost of the purchase, what is your rate of return? A. 33.05% B. -33.05% C. -23.51% D. -25.35% E. -40.64%

B. -33.05%

Heidi Talbott has a margin account with a balance of $50,000. The initial margin deposit is 50 percent, and RC Industries is currently selling at $50 per share. Refer to Exhibit 4.2. How many shares of RC can Heidi buy? A. 2,500 B. 2,000 C. 1,000 D. 500 E. None of the above

B. 2,000

You sell 100 shares short of AMF Corporation when it is selling at $45 per share. Your margin requirement is 60% and the commission on the sale is $50 and the broker charges 10% annual interest. AMF Corporation paid a $0.50 per share dividend while you were short the stock. After one year you cover your short sale at $35 per share with a $50 commission for the purchase. Refer to Exhibit 4.8. What is your annual rate of return on this investment? A. 18% B. 24% C. 25% D. 36% E. 37%

B. 24%

87. You purchased 100 shares of Highlight Company for $20 a share one year ago with a margin of 50%. The stock is currently selling for $28 a share and no dividends were ever paid. The broker charges an annual interest rate of 8% and a $100 commission on both the purchase and sale of these shares. What is your annual rate of return on this investment? A. 21% B. 47% C. 52% D. 60% E. 72%

B. 47%

56. Which of the following is not a characteristic of shelf registrations? Shelf registrations: A. Were introduced by Rule 415. B. Allow large firms to register security issues and sell them piecemeal during the following six years. C. Provide flexibility and reduce registration fees and expenses. D. Are typically used for the sale of straight debentures rather than common stock or convertible issues. E. All of the above are characteristics of shelf registrations.

B. Allow large firms to register security issues and sell them piecemeal during the following six years.

62. A 1994 study concluded dealers were colluding to maintain wide bid/ask spreads by concentrating market quotes in quarters instead of eighths. This study eventually led to new order handling rules that required quotes to be available to the public through: A. NASDAQ market B. Electronic communications networks (ECN) C. High frequency trading (HFT) D. Algorithmic trading (AT) E. Intermarket trading system (ITS)

B. Electronic communications networks (ECN)

61. The US secondary market with the largest number of issues traded is the: A. AMEX B. NASDAQ C. NYSE D. LSE E. Both a and c

B. NASDAQ

44. In a call market, trading for individual stocks A. Occurs anytime the market is open. B. Takes place at specific times. C. Takes place at the open and close of the trading day. D. All of the above. E. None of the above.

B. Takes place at specific times.

54. Trading in the secondary markets for Corporate bonds A. Takes place through a network of primary dealers B. Takes place over the counter by dealers who buy and sell on their own account C. Takes place on the NYSE bond annex D. All of the above E. None of the above

B. Takes place over the counter by dealers who buy and sell on their own account

49. When a market is internally efficient, it means that A. The market has price continuity. B. The market has minimal transactions costs C. The market has good depth D. The market has more buyers than sellers E. The market has more sellers than buyers

B. The market has minimal transactions costs

Kathy Smith has a margin account with a balance of $60,000. Initial margin requirements are 80 percent, and Jackson Industries is currently selling at $40 per share. Refer to Exhibit 4.3. If the maintenance margin is 25 percent, to what price can Jackson Industries fall before Kathy receives a margin call? A. $21.75 B. $23.00 C. $10.67 D. $15.93 E. None of the above

C. $10.67

Heidi Talbott has a margin account with a balance of $50,000. The initial margin deposit is 50 percent, and RC Industries is currently selling at $50 per share. Refer to Exhibit 4.2. What is Heidi's profit if RC's price rises to $80? A. $55,000 B. $50,000 C. $60,000 D. $68,270 E. $28,570

C. $60,000 Heidi Talbott has a margin account with a balance of $50,000. The initial margin deposit is 50 percent, and RC Industries is currently selling at $50 per share. Refer to Exhibit 4.2. If the maintenance margin is 25 percent, to what price can RC Industries stock price fall before Heidi receives a margin call? A. $21.75 B. $23.33 C. $32.00 D. $33.33 E. None of the above D. $33.33

92. You sell short 100 shares of Hi-Light Corporation when it is trading at $70. Your margin requirement is 50%. Assuming there was no commission and the maintenance margin is 25%, at what stock price would you receive a margin call? A. $76 B. $80 C. $84 D. $88 E. $9

C. $84

76. Suppose you buy a round lot of DG Solutions stock on 60% margin when it is selling at $55 a share. The broker charges a 10 percent annual interest rate and commissions are 3 percent of the total stock value on both the purchase and the sale. If at year end you receive a $1.10 per share dividend and sell the stock for 55 5/8, what is your rate of return on the investment? A. -10.38% B. -12.84% C. -10.95% D. 21.84% E. 28.38%

C. -10.95%

43. A block trade is one which involves a minimum of A. 1,000 shares. B. 5,000 shares. C. 10,000 shares. D. 100,000 shares. E. 1,000,000 shares.

C. 10,000 shares.

Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%. Refer to Exhibit 4.7. At the end of one year shares of RossCorp stock are selling for $55 per share and the company paid dividends of $0.85 per share. Assuming that you borrowed 25% of cost of the purchase, what is your rate of return? A. -23.51% B. 29.35% C. 23.51% D. 5.21% E. 10.06%

C. 23.51%

86. You own 50 shares of Auto Corporation that you purchased for $30 a share. The stock is currently selling for $50 a share and you placed a stop loss order at $45. If the stock price drops to $35 a share what is your return on this investment? A. -30.0% B. 16.7% C. 50.0% D. 66.7% E. 150.0%

C. 50.0%

You decide to sell short 200 shares of XCorp stock at a price of $75. Your margin deposit is 65 percent. Commission on the sale is 1.25%. While you are short, the stock pays a $1.75 per share dividend. Interest on margin debt is 5.25% per year. Refer to Exhibit 4.6. At the end of one year you close out your short position by purchasing share of XCorp at $45 per share. The commission is 1.25%. What is your rate of return on the investment? A. -55.92% B. 10.31% C. 51.06% D. 23.1% E. -33.05%

C. 51.06%

39. When an investor borrows part of the investment cost it is known as A. A short sale. B. A fill or kill order. C. A margin transaction. D. A limit order. E. Going long.

C. A margin transaction.

53. The basic distinction between a primary and a secondary market is A. proceeds from sales in the primary market go to the current owner of a security; proceeds in secondary market go to the original owner. B. primary markets involve direct dealings within regional exchanges. C. only new securities are sold in the primary market; only outstanding securities are bought and sold in the secondary market. D. primary markets deal exclusively in bonds; secondary markets deal primarily in common stock. E. None of the above.

C. only new securities are sold in the primary market; only outstanding securities are bought and sold in the secondary market.

Jackie has a margin account with a balance of $150,000. The initial margin deposit is 60 percent and Turtle Industries is currently selling at $50 per share. Refer to Exhibit 4.1. If the maintenance margin is 25 percent, to what price can Turtle Industries fall before Jackie receives a margin call? A. $14.56 B. $23.17 C. $32.42 D. $26.67 E. None of the above

D. $26.67

Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%. Refer to Exhibit 4.7. Assume that you purchase 150 shares of RossCorp stock at $45 each by making a margin deposit of 55%. At what price would you receive a margin call? A. $29.39 B. $26.48 C. $50.39 D. $28.93 E. $50.10

D. $28.93

You sell 100 shares short of AMF Corporation when it is selling at $45 per share. Your margin requirement is 60% and the commission on the sale is $50 and the broker charges 10% annual interest. AMF Corporation paid a $0.50 per share dividend while you were short the stock. After one year you cover your short sale at $35 per share with a $50 commission for the purchase. Refer to Exhibit 4.8. What is your total dollar return on this investment? A. $1,000 B. $900 C. $850 D. $670 E. $520

D. $670

You decide to sell 100 shares of Topgun Enterprises Inc. short when it is selling at its yearly high of $42.25. Your broker tells you that your margin requirement is 60 percent and that the commission on the sale is $20. While you are short, Topgun pays a $0.85 per share dividend. At the end of one year you buy your Topgun shares (cover your short sale) at $44 and are charged a commission of $20 and a 5 percent interest rate. Refer to Exhibit 4.5. What is your dollar return on the investment? A. $384.50 B. $432.88 C. -$432.88 D. -$384.50 E. -$950.55

D. -$384.50

91. You purchased 75 shares of Basket Company for $42 a share. One share of the stock is currently trading between $52 and $53 and you placed a stop loss order at $47. If the stock price drops to $40 a share, what is your return on this investment? A. 8.7% B. 9.2% C. 10.3% D. 11.9% E. 12.8%

D. 11.9%

You decide to sell 100 shares of Davis Industries short when it is selling at its yearly high of $35. Your broker tells you that your margin requirement is 55 percent and that the commission on the sale is $15. While you are short, Davis pays a $0.75 per share dividend. At the end of one year you buy your Davis shares (cover your short sale) at $30 and are charged a commission of $15 and a 6 percent interest rate. Refer to Exhibit 4.4. What is your rate of return on the investment? A. 10.48% B. 12.87% C. 13.98% D. 15.49% E. 18.87%

D. 15.49%

42. Floor brokers on the New York Stock Exchange A. Use their membership to buy and sell for their own account. B. Are employees of a member firm and buy and sell for customers of the firm. C. Handle limit and other orders placed by other brokers. D. Act as brokers for other members. E. Maintain a fair and orderly market.

D. Act as brokers for other members.

34. Which of the following statements about a market is true? A. It is not necessary for the market to have a physical location. B. The market does not necessarily own the goods or services involved. C. A market can deal in any variety of goods and services. D. All of the above E. None of the above

D. All of the above

47. Municipal bonds are sold using the following method or methods: A. Competitive bid B. Negotiated sale C. Private placement D. All of the above E. None of the above

D. All of the above

60. All of the following are characteristics of a dealer market except: A. Also referred to as a quote-driven market B. NASDAQ market is a dealer market C. Individual dealers buy and sell shares for themselves D. Centralized trading location E. All of the above are characteristics of a dealer market

D. Centralized trading location

58. Which of the following is not a major category of membership in stock exchanges? A. Specialist B. Commission broker C. Floor broker D. Financial analyst E. Registered trader

D. Financial analyst

48. When a market is externally efficient, it means that A. Timely and accurate information is available B. The market is liquid C. Transaction costs are low D. Prices adjust rapidly to new information E. The number of buyers and sellers are the same

D. Prices adjust rapidly to new information

37. Regional exchanges exist because A. They provide trading facilities for local companies B. They allow local brokers to trade dual listed stocks C. They allow for trading of local bonds D. a and b. E. b and c.

D. a and b.

52. With a best effort offering, the investment banker performs all of the following roles except: A. determines the fee paid to themselves for handling the issue. B. manages the selling group for the new issue. C. evaluates market conditions and determines the characteristics of the security. D. guarantees the selling price for the entire issue to the firm issuing the securities. E. All of the above are true.

D. guarantees the selling price for the entire issue to the firm issuing the securities.

You decide to sell 100 shares of Topgun Enterprises Inc. short when it is selling at its yearly high of $42.25. Your broker tells you that your margin requirement is 60 percent and that the commission on the sale is $20. While you are short, Topgun pays a $0.85 per share dividend. At the end of one year you buy your Topgun shares (cover your short sale) at $44 and are charged a commission of $20 and a 5 percent interest rate. Refer to Exhibit 4.5. What is your rate of return on the investment? A. 10.48% B. 12.87% C. -13.98% D. -24.49% E. -15.05%

E. -15.05%

Shares of RossCorp stock are selling for $45 per share. Brokerage commissions are 2% for purchases and 2% for sales. The interest rate on margin debt is 6.25% per year. The maintenance margin is 30%. Refer to Exhibit 4.7. At the end of one year shares of RossCorp stock are selling for $55 per share and the company paid dividends of $0.85 per share. Assuming that you paid the full cost of the purchase, what is your rate of return if you sell RossCorp stock? A. 18.08% B. 23.51% C. 22.32% D. 14.96% E. 19.28%

E. 19.28%

51. Which of the following is an underwriting function? A. Origination B. Risk-bearing C. Distribution D. Choices b and c E. All of the above

E. All of the above

57. All of the following are advantages of secondary markets except A. Provide liquidity to individuals holding the securities. B. Support the primary market by reducing the required rate of return due to the lower liquidity risk for securities. C. Provide price discovery for corporations selling seasoned securities. D. Impact market efficiency and price volatility. E. All of the above are advantages of secondary markets.

E. All of the above are advantages of secondary markets.

35. Which of the following is not a characteristic of a good market for goods and services? A. Timely and accurate information B. Liquidity C. Low transaction costs D. External efficiency E. All of the above are characteristics of a good market.

E. All of the above are characteristics of a good market.

45. A pure auction market is one in which A. Dealers provide liquidity by buying and selling shares of stock for themselves. B. Dealers compete against each other to provide the highest bid and lowest asking prices. C. Buyers submit bid prices to sellers. D. Sellers submit ask prices to buyers. E. Buyers and sellers submit bid and ask prices to a central location to be matched.

E. Buyers and sellers submit bid and ask prices to a central location to be matched.

41. The member of the New York Stock Exchange who acts as a dealer on assigned stocks is known as a A. Registered trader. B. Commission broker. C. Registered broker. D. Floor broker. E. Specialist.

E. Specialist.

10. Rule 415, shelf registration, allows large firms to register ten years worth of financing needs all at one time.

FALSE

11. Only the stocks of large companies are traded in the primary market.

FALSE

18. The value of the stocks traded in the over-the-counter market is greater than the combined values of the stocks traded on the New York Stock Exchange and the American Stock Exchange combined.

FALSE

19. The Nasdaq National Market System is an order driven market.

FALSE

2. It is required by law that a stock market must have a physical location.

FALSE

21. Short selling is practiced when an investor borrows part of the cost of the investment, e.g., they are "short" on cash.

FALSE

22. The NYSE is a dealer market.

FALSE

26. Rule 415 allows corporations to place securities privately with large, sophisticated institutional investors without extensive registration documents.

FALSE

27. Secondary equity issues are new shares offered by firms that already have stock outstanding.

FALSE

29. In a dealer market trading system shares of stock are sold to the investor with the highest bid price and bought from the seller with the lowest offering price.

FALSE

3. If transaction prices are volatile, but long-term prices are stable, this is referred to as price continuity.

FALSE

30. Specialists provide added liquidity in the Nasdaq market.

FALSE

31. Initial public offerings (IPOs) involve selling of bonds to the public for the first time.

FALSE

33. A pure auction market is also referred to as a quote-driven market.

FALSE

5. A market where prices adjust rapidly to new information is considered to be internally efficient.

FALSE

6. Informational efficiency is where the cost of acquiring information is very cheap.

FALSE

7. The primary market is where issues are traded between current and potential owners.

FALSE

9. A corporation wishing to raise funds will normally want the investment banker to use a "best efforts" arrangement rather than a negotiated basis.

FALSE

1. A market is a means through which buyers and sellers are brought together to aid in the transfer of goods and/or services.

TRUE

12. A good secondary market is important to the efficiency of the primary market.

TRUE

13. The NYSE has dominated the other U.S. exchanges in trading volume.

TRUE

14. In recent years there has been a trend toward the consolidation of existing exchanges in developed markets, such as London, Frankfurt and Paris.

TRUE

15. Listed stocks traded on the over-the-counter market are being traded in the third market.

TRUE

16. The over-the-counter market includes all stocks not listed on one of the major exchanges but constitutes a lesser of a dollar value than the New York and American Exchanges combined.

TRUE

17. The over-the-counter market lists more stocks than the New York Stock Exchange and the American Stock Exchange combined.

TRUE

20. Margin transaction involves borrowing part of the cost of an investment.

TRUE

23. A block house is a brokerage firm that buys and sells blocks of stock for institutions.

TRUE

24. Super DOT is an electronic order-routing system through which member firms can transmit market and limit orders directly to the posts where the securities are traded.

TRUE

25. Global trading has eroded the NYSE's share of the market for NYSE-listed stocks.

TRUE

28. In a pure auction market buyers and sellers submit bid-and-ask prices for a given stock to a central location.

TRUE

32. Rule 144A reduced registration documentation requirements for placing securities privately with large institutional investors.

TRUE

4. A continuous market that has price continuity requires depth of buyers and sellers.

TRUE

8. Negotiation, competitive bids, and best efforts are three forms of underwriting arrangements.

TRUE