投资学第7版Test Bank答案03.docx
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投资学第7版TestBank答案03
MultipleChoiceQuestions
1.Apurchaseofanewissueofstocktakesplace
A)inthesecondarymarket.
B)intheprimarymarket.
C)usuallywiththeassistanceofaninvestmentbanker.
D)AandB.
E)BandC.
Answer:
EDifficulty:
Easy
Rationale:
Fundsfromthesaleofnewissuesflowtotheissuingcorporation,makingthisaprimarymarkettransaction.Investmentbankersusuallyassistbypricingtheissueandfindingbuyers.
2.Thefollowingstatementsregardingthespecialistaretrue:
A)Specialistsmaintainabooklistingoutstandingunexecutedlimitorders.
B)Specialistsearnincomefromcommissionsandspreadsinstockprices.
C)Specialistsstandreadytotradeatquotedbidandaskprices.
D)Specialistscannottradeintheirownaccounts.
E)A,B,andCarealltrue.
Answer:
EDifficulty:
Moderate
Rationale:
Thespecialists'functionsarealloftheitemslistedinA,B,andC.Inaddition,specialiststradeintheirownaccounts.
3.Investmentbankers
A)actasintermediariesbetweenissuersofstocksandinvestors.
B)actasadvisorstocompaniesinhelpingthemanalyzetheirfinancialneedsandfindbuyersfornewlyissuedsecurities.
C)acceptdepositsfromsaversandlendthemouttocompanies.
D)AandB.
E)A,B,andC.
Answer:
DDifficulty:
Moderate
Rationale:
Theroleoftheinvestmentbankeristoassistthefirminissuingnewsecurities,bothinadvisoryandmarketingcapacities.Theinvestmentbankerdoesnothavearolecomparabletoacommercialbank,asindicatedinC.
4.Ina"firmcommitment"
A)theinvestmentbankerbuysthestockfromthecompanyandresellstheissuetothepublic.
B)theinvestmentbankeragreestohelpthefirmsellthestockatafavorableprice.
C)theinvestmentbankerfindsthebestmarketingarrangementfortheinvestmentbankingfirm.
D)BandC.
E)AandB.
Answer:
ADifficulty:
Moderate
5.Thesecondarymarketconsistsof
A)transactionsontheAMEX.
B)transactionsintheOTCmarket.
C)transactionsthroughtheinvestmentbanker.
D)AandB.
E)A,B,andC.
Answer:
DDifficulty:
Moderate
Rationale:
ThesecondarymarketconsistsoftransactionsontheorganizedexchangesandintheOTCmarket.Theinvestmentbankerisinvolvedintheplacementofnewissuesintheprimarymarket.
6.TheuseoftheInternettotradeandunderwritesecurities
A)isillegalunderSECregulations.
B)isregulatedbytheNewYorkStockExchange.
C)decreasesunderwritingcostsforanewsecurityissue.
D)increasesunderwritingcostsforanewsecurityissue.
E)isregulatedbytheNationalAssociationofSecuritiesDealers.
Answer:
CDifficulty:
Moderate
Rationale:
TheSECpermitstradingandunderwritingofsecuritiesovertheInternet,buthasrequiredfirmsparticipatinginthisactivitytotakestepstosafeguardinvestmentfunds.Thisformofunderwritingisexpectedtogrowquicklyduetoitslowercost.
7.Initialmarginrequirementsaredeterminedby
A)theSecuritiesandExchangeCommission.
B)theFederalReserveSystem.
C)theNewYorkStockExchange.
D)BandC.
E)AandB
Answer:
BDifficulty:
Moderate
Rationale:
TheBoardofGovernorsoftheFederalReserveSystemdeterminesinitialmarginrequirements.TheNewYorkStockExchangedeterminesmaintenancemarginrequirementsonNYSE-listedstocks;however,brokersusuallysetmaintenancemarginrequirementsabovethoseestablishedbytheNYSE.
8.YoupurchasedXYZstockat$50pershare.Thestockiscurrentlysellingat$65.Yourgainsmaybeprotectedbyplacinga__________
A)stop-buyorder
B)limit-buyorder
C)marketorder
D)limit-sellorder
E)noneoftheabove.
Answer:
DDifficulty:
Moderate
Rationale:
Withalimit-sellorder,yourstockwillbesoldonlyataspecifiedprice,orbetter.Thus,suchanorderwouldprotectyourgains.Noneoftheotherordersareapplicabletothissituation.
9.YousoldABCstockshortat$80pershare.Yourlossescouldbeminimizedbyplacinga__________:
A)limit-sellorder
B)limit-buyorder
C)stop-buyorder
D)day-order
E)noneoftheabove.
Answer:
CDifficulty:
Moderate
Rationale:
Withastop-buyorder,thestockwouldbepurchasedifthepriceincreasedtoaspecifiedlevel,thuslimitingyourloss.Noneoftheotherordersareapplicabletothissituation.
10.Whichoneofthefollowingstatementsregardingordersisfalse?
A)Amarketorderissimplyanordertobuyorsellastockimmediatelyattheprevailingmarketprice.
B)Alimitsellorderiswhereinvestorsspecifypricesatwhichtheyarewillingtosellasecurity.
C)IfstockABCissellingat$50,alimit-buyordermayinstructthebrokertobuythestockifandwhenthesharepricefallsbelow$45.
D)Adayorderexpiresatthecloseofthetradingday.
E)Noneoftheabove.
Answer:
EDifficulty:
Moderate
Rationale:
Alloftheorderdescriptionsabovearecorrect.
11.Restrictionsontradinginvolvinginsiderinformationapplytothefollowingexcept
A)corporateofficersanddirectors.
B)relativesofcorporatedirectorsandofficers.
C)majorstockholders.
D)Alloftheabovearesubjecttoinsidertradingrestrictions.
E)Noneoftheaboveissubjecttoinsidertradingrestrictions.
Answer:
DDifficulty:
Moderate
Rationale:
A,B,andCarecorporateinsidersandaresubjecttorestrictionsontradingoninsideinformation.Further,theSupremeCourtheldthattradersmaynottradeonnonpublicinformationeveniftheyarenotinsiders.
12.Thecostofbuyingandsellingastockconsistsof__________.
A)broker'scommissions
B)dealer'sbid-askedspread
C)apriceconcessionaninvestormaybeforcedtomake.
D)AandB.
E)A,B,andC.
Answer:
EDifficulty:
Moderate
Rationale:
Alloftheabovearepossiblecostsofbuyingandsellingastock.
13.Assumeyoupurchased200sharesofXYZcommonstockonmarginat$70persharefromyourbroker.Iftheinitialmarginis55%,howmuchdidyouborrowfromthebroker?
A)$6,000
B)$4,000
C)$7,700
D)$7,000
E)$6,300
Answer:
EDifficulty:
Moderate
Rationale:
200shares*$70/share*(1-0.55)=$14,000*(0.45)=$6,300.
14.Yousoldshort200sharesofcommonstockat$60pershare.Theinitialmarginis60%.Yourinitialinvestmentwas
A)$4,800.
B)$12,000.
C)$5,600.
D)$7,200.
E)noneoftheabove.
Answer:
DDifficulty:
Moderate
Rationale:
200shares*$60/share*0.60=$12,000*0.60=$7,200
15.Youpurchased100sharesofABCcommonstockonmarginat$70pershare.Assumetheinitialmarginis50%andthemaintenancemarginis30%.Belowwhatstockpricelevelwouldyougetamargincall?
Assumethestockpaysnodividend;ignoreinterestonmargin.
A)$21
B)$50
C)$49
D)$80
E)noneoftheabove
Answer:
BDifficulty:
Difficult
Rationale:
100shares*$70*.5=$7,000*0.5=$3,500(loanamount);0.30=(100P-$3,500)/100P;30P=100P-$3,500;-70P=-$3,500;P=$50.
16.Youpurchased100sharesofcommonstockonmarginat$45pershare.Assumetheinitialmarginis50%andthestockpaysnodividend.Whatwouldthemaintenancemarginbeifamargincallismadeatastockpriceof$30?
Ignoreinterestonmargin.
A)0.33
B)0.55
C)0.43
D)0.23
E)0.25
Answer:
EDifficulty:
Difficult
Rationale:
100shares*$45/share*0.5=$4,500*0.5=$2,250(loanamount);X=[100($30)-$2,250]/100($30);X=0.25.
17.Youpurchased300sharesofcommonstockonmarginfor$60pershare.Theinitialmarginis60%andthestockpaysnodividend.Whatwouldyourrateofreturnbeifyousellthestockat$45pershare?
Ignoreinterestonmargin.
A)25%
B)-33%
C)44%
D)-42%
E)–54%
Answer:
DDifficulty:
Difficult
Rationale:
300($60)(0.60)=$10,800investment;300($60)=$18,000X(0.40)=$7,200loan;Proceedsaftersellingstockandrepayingloan:
$13,500-$7,200=$6,300;Return=($6,300-$10,800)/$10,800=-41.67%.
18.Assumeyousellshort100sharesofcommonstockat$45pershare,withinitialmarginat50%.Whatwouldbeyourrateofreturnifyourepurchasethestockat$40/share?
Thestockpaidnodividendsduringtheperiod,andyoudidnotremoveanymoneyfromtheaccountbeforemakingtheoffsettingtransaction.
A)20%
B)25%
C)22%
D)77%
E)noneoftheabove
Answer:
CDifficulty:
Moderate
Rationale:
Profitonstock=($45-$40)*100=$500,$500/$2,250(initialinvestment)=22.22%.
19.Yousoldshort300sharesofcommonstockat$55pershare.Theinitialmarginis60%.Atwhatstockpricewouldyoureceiveamargincallifthemaintenancemarginis35%?
A)$51
B)$65
C)$35
D)$40
E)noneoftheabove
Answer:
BDifficulty:
Difficult
Rationale:
Equity=300($55)*1.6=$26,400;0.35=($26,400-300P)/300P;105P=26,400-300P;405P=26,400;P=$65.18
20.Assumeyousoldshort100sharesofcommonstockat$50pershare.Theinitialmarginis60%.Whatwouldbethemaintenancemarginifamargincallismadeatastockpriceof$60?
A)40%
B)33%
C)35%
D)25%
E)noneoftheabove
Answer:
BDifficulty:
Difficult
Rationale:
$5,000X1.6=$8,000;[$8,000-100($60)]/100($60)=33%.
21.Specialistsonstockexchangesperformthefollowingfunctions
A)Actasdealersintheirownaccounts.
B)Analyzethesecuritiesinwhichtheyspecialize.
C)Provideliquiditytothemarket.
D)AandB.
E)AandC.
Answer:
EDifficulty:
Moderate
Rationale:
Specialistsarebothbrokersanddealersandprovideliquiditytothemarket;theyarenotanalysts.
22.Sharesforshorttransactions
A)areusuallyborrowedfromotherbrokers.
B