This question bank verified by Studydeets

Questions Bank

All Questions
Filter by:
Question 1
Free
Multiple Choice

A ____ order to buy or sell a stock means to execute the transaction at the best possible price.

Choose correct answer/s
A

market

B

limit

C

stop-loss

D

stop-buy

Check answer
Question 2
Free
Multiple Choice

With a ____ order, the investor specifies a purchase price that is above the current market price.

Choose correct answer/s
A

market

B

limit

C

stop-loss

D

stop-buy

Check answer
Question 3
Free
Multiple Choice

When investors buy stock with borrowed funds, this is sometimes referred to as

Choose correct answer/s
A

use of proxy.

B

purchasing stock on margin.

C

a margin call.

D

a margin residual claim.

Check answer
Question 4
Free
True/False

The maintenance margin is the minimum amount of the margin that investors must maintain as a percentage of the stock's initial purchase price.

Choose correct answer/s

True

False

Check answer
Question 5
Free
Multiple Choice

Assume a stock is initially priced at $50, and pays an annual $2 dividend. An investor uses cash to pay $25 a share and borrows the remaining funds at a 12 percent annual interest. What is thereturn if the investor sells the stock for $55 at the end of one year?

Choose correct answer/s
A

50 percent

B

30 percent

C

10 percent

D

16 percent

E

8 percent

Check answer
Question 6
Multiple Choice

When a brokerage firm demands more collateral from investors who have borrowed from the brokerage firm to buy stocks, it is making a

Choose correct answer/s
A
margin call.
B
short sale.
C
proxy fight.
D
hedge.
To unlock the question
Question 7
Multiple Choice

Which of the following statements is incorrect?

Choose correct answer/s
A
In a short sale, investors place an order to sell a stock that they do not own.
B
Investors sell a stock short when they anticipate that its price will rise.
C
When investors sell short, they will ultimately have to provide the stock back to the investor from whom they borrowed it.
D
Short-sellers must make payments to the investor from whom the stock was borrowed to cover the dividend payments that the investor would have received of the stock had not been borrowed.
To unlock the question
Question 8
Multiple Choice

Which of the following statements about program trading is incorrect?

Choose correct answer/s
A
It represents a computerized response by institutional investors to either buy or sell a large basket of stocks in response to movements in a particular stock index.
B
It may involve the purchase of stocks that have become "underpriced."
C
It may involve the sale of stocks that have become "overpriced."
D
It is designed to capitalize on Federal Reserve monetary policy announcements.
E
None of the above
To unlock the question
Question 9
Multiple Choice

You purchase a stock with cash, and you earn a negative return on the stock. If you had purchased the stock with 60 percent cash and 40 percent borrowed funds, your return on your investment wouldhave been

Choose correct answer/s
A
positive
B
more negative than if you had covered the entire investment with cash.
C
negative, but more favorable than if you had covered the entire investment with cash.
D
zero
To unlock the question
Question 10
Multiple Choice

Mark would like to purchase a stock priced at $70. Mark thinks he can sell the stock for $100 after one year. If Mark does not borrow any money from his brokerage firm, what is the estimatedreturn on the stock?

Choose correct answer/s
A
30.00 percent
B
-42.86 percent
C
-30.00 percent
D
42.86 percent
E
none of the above
To unlock the question
Question 11
Multiple Choice

Mark would like to purchase a stock priced at $70. The stock is not expected to pay any dividends in the coming year. Mark can either put up the entire amount and purchase the stock, or borrowhalf of the investment amount from his brokerage firm at an annual interest rate of 12 percent and put up the remainder. Mark thinks he can sell the stock for $100 after one year. If Mark borrows from his brokerage firm, his estimated return on the stock would be ____ percent.

Choose correct answer/s
A
42.86
B
85.71
C
73.71
D
30
To unlock the question
Question 12
Multiple Choice

Karen just purchased a stock costing $33 on margin, paying $23 and borrowing the remainder from a brokerage firm at 15 percent annual interest. The stock pays an annual dividend of $2. If Karensells the stock after one year at a price of $50, what is the return on the stock?

Choose correct answer/s
A
27.60 percent
B
82.61 percent
C
76.09 percent
D
58.70 percent
E
none of the above
To unlock the question
Question 13
Multiple Choice

Under the present margin requirements, at least ____ percent of an investor's invested funds must be paid in cash.

Choose correct answer/s
A
20
B
30
C
40
D
50
E
none of the above
To unlock the question
Question 14
True/False

The short interest ratio is commonly measured as the number of shares sold short divided by the number of shares that the firm has repurchased in the last quarter.

Choose correct answer/s
True
False
To unlock the question
Question 15
True/False

Investors can reduce their risk by purchasing a stock on margin instead of using all cash to buy the stock.

Choose correct answer/s
True
False
To unlock the question
Question 16
Multiple Choice

A short seller

Choose correct answer/s
A
anticipates that the price of the stock sold short will increase.
B
earns the difference between what was initially paid for the stock versus what the stock is later sold for.
C
makes a profit equal to the difference between the original selling price and the price paid for the stock, after subtracting any dividend payments made.
D
is essentially lending the stock to another investor and will ultimately receive that stock back from that investor.
E
none of the above
To unlock the question
Question 17
Multiple Choice

____ are enforced to restrict the amount of credit extended to customers by stockbrokers.

Choose correct answer/s
A
Limit orders
B
Margin requirements
C
Maintenance margins
D
Initial margins
To unlock the question
Question 18
Multiple Choice

Assume that a stock is priced at $50 and pays an annual dividend of $2 per share. An investor purchases the stock on margin, paying $25 per share and borrowing the remainder from the brokeragefirm at 9 percent annual interest. If, after one year, the stock is sold at a price of $65.25 per share, the return on the stock is

Choose correct answer/s
A
60 percent
B
44 percent.
C
30 percent.
D
69 percent.
To unlock the question
Question 19
Multiple Choice

Assume that a stock is priced at $50 and pays an annual dividend of $2 per share. An investor purchases the stock, using only personal funds and not borrowing from the brokerage firm. If, afterone year, the stock is sold at a price of $65.25 per share, the return on the stock is

Choose correct answer/s
A
26.5 percent.
B
28.5 percent.
C
30.5 percent.
D
34.5 percent.
To unlock the question
Question 20
Multiple Choice

The risk of a short sale is that the stock price

Choose correct answer/s
A
may decrease over time.
B
will remain the same.
C
may increase over time.
D
none of the above
To unlock the question