投资学第7版TestBank答案03

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1、Multiple Choice Questions1. A purchase of a new issue of stock takes placeA) in the secondary market.B) in the primary market.C) usually with the assistance of an investment banker.D) A and B.E) B and C.Answer: E Difficulty: EasyRationale: Funds from the sale of new issues flow to the issuing corpor

2、ation, making this a primary market transaction. Investment bankers usually assist by pricing the issue and finding buyers.2. The following statements regarding the specialist arerue:A) Specialists maintain a book listing outstanding unexecuted limit orders.B) Specialists earn income from commission

3、s and spreads in stock prices.C) Specialists stand ready to trade at quoted bid and ask prices.D) Specialists cannot trade in their own accounts.E) A, B, and C are all true.Answer: E Difficulty: ModerateRationale: The specialists functions are all of the items listed in A, B, and C. In addition, spe

4、cialists trade in their own accounts.3. Investment bankersA) act as intermediaries between issuers of stocks and investors.B) act as advisors to companies in helping them analyze their financial needs and find buyers for newly issued securities.C) accept deposits from savers and lend them out to com

5、panies.D) A and B.E) A, B, and C.Answer: D Difficulty: ModerateRationale: The role of the investment banker is to assist the firm in issuing new securities, both in advisory and marketing capacities. The investment banker does not have a role comparable to a commercial bank, as indicated in C.4. In

6、a firm commitmentA) the investment banker buys the stock from the company and resells the issue to the public.B) the investment banker agrees to help the firm sell the stock at a favorable price.C) the investment banker finds the best marketing arrangement for the investment banking firm.D) B and C.

7、E) A and B.Answer: A Difficulty: Moderate5. The secondary market consists ofA) transactions on the AMEX.B) transactions in the OTC market.C) transactions through the investment banker.D) A and B.E) A, B, and C.Answer: D Difficulty: ModerateRationale: The secondary market consists of transactions on

8、the organized exchanges and in the OTC market. The investment banker is involved in the placement of new issues in the primary market.6. The use of the Internet to trade and underwrite securitiesA) is illegal under SEC regulations.B) is regulated by the New York Stock Exchange.C) decreases underwrit

9、ing costs for a new security issue.D) increases underwriting costs for a new security issue.E) is regulated by the National Association of Securities Dealers.Answer: C Difficulty: ModerateRationale: The SEC permits trading and underwriting of securities over the Internet, but has required firms part

10、icipating in this activity to take steps to safeguard investment funds. This form of underwriting is expected to grow quickly due to its lower cost.R |7. Initial margin requirements are determined byA) the Securities and Exchange Commission.B) the Federal Reserve System.C) the New York Stock Exchang

11、e.D) B and C.E) A and BAnswer: B Difficulty: ModerateRationale: The Board of Governors of the Federal Reserve System determines initial margin requirements. The New York Stock Exchange determines maintenance margin requirements on NYSE-listed stocks; however, brokers usually set maintenance margin r

12、equirements above those established by the NYSE.8. You purchased XYZ stock at $50 per share. The stock is currently selling at $65. Your gains may be protected by placing aA) stop-buy orderB) limit-buy orderC) market orderD) limit-sell orderE) none of the above.Answer: D Difficulty: ModerateRational

13、e: With a limit-sell order, your stock will be sold only at a specified price, or better. Thus, such an order would protect your gains. None of the other orders are applicable to this situation.9. You sold ABC stock short at $80 per share. Your losses could be minimized by placing a:A) limit-sell or

14、derB) limit-buy orderC) stop-buy orderD) day-orderE) none of the above.Answer: C Difficulty: ModerateRationale: With a stop-buy order, the stock would be purchased if the price increased to a specified level, thus limiting your loss. None of the other orders are applicable to this situation.H A |10.

15、 Which one of the following statements regarding orders iSalse?A) A market order is simply an order to buy or sell a stock immediately at the prevailing market price.B) A limit sell order is where investors specify prices at which they are willing to sell a security.C) If stock ABC is selling at $50

16、, a limit-buy order may instruct the broker to buy the stock if and when the share price falls below $45.D) A day order expires at the close of the trading day.E) None of the above.Answer: E Difficulty: ModerateRationale: All of the order descriptions above are correct.11. Restrictions on trading in

17、volving insider information apply to the following exceptA) corporate officers and directors.B) relatives of corporate directors and officers.C) major stockholders.D) All of the above are subject to insider trading restrictions.E) None of the above is subject to insider trading restrictions.Answer:

18、D Difficulty: ModerateRationale: A, B, and C are corporate insiders and are subject to restrictions on trading on inside information. Further, the Supreme Court held that traders may not trade on nonpublic information even if they are not insiders.12. The cost of buying and selling a stock consists

19、of.A) brokers commissionsB) dealers bid-asked spreadC) a price concession an investor may be forced to make.D) A and B.E) A, B, and C.Answer: E Difficulty: ModerateRationale: All of the above are possible costs of buying and selling a stock.n a t13. Assume you purchased 200 shares of XYZ common stoc

20、k on margin at $70 per share from your broker. If the initial margin is 55%, how much did you borrow from the broker?A) $6,000B) $4,000C) $7,700D) $7,000E) $6,300Answer: E Difficulty: ModerateRationale: 200 shares * $70/share * (1-0.55) = $14,000 * (0.45) = $6,300.14. You sold short 200 shares of co

21、mmon stock at $60 per share. The initial margin is 60%. Your initial investment was A) $4,800.B) $12,000.C) $5,600.D) $7,200.E) none of the above.Answer: D Difficulty: ModerateRationale: 200 shares * $60/share * 0.60 = $12,000 * 0.60 = $7,20015. You purchased 100 shares of ABC common stock on margin

22、 at $70 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.A) $21B) $50C) $49D) $80E) none of the aboveAnswer: B Difficulty: DifficultRationale: 100 shar

23、es * $70 * .5 = $7,000 * 0.5 = $3,500 (loan amount); 0.30 = (100P - $3,500)/100P; 30P = 100P - $3,500; -70P = -$3,500; P = $50.K Ji T16. You purchased 100 shares of common stock on margin at $45 per share. Assume the initial margin is 50% and the stock pays no dividend. What would the maintenance ma

24、rgin be if a margin call is made at a stock price of $30? Ignore interest on margin.A) 0.33B) 0.55C) 0.43D) 0.23E) 0.25Answer: E Difficulty: DifficultRationale: 100 shares * $45/share * 0.5 = $4,500 * 0.5 = $2,250 (loan amount); X = 100($30) - $2,250/100($30); X = 0.25.17. You purchased 300 shares o

25、f common stock on margin for $60 per share. The initial margin is 60% and the stock pays no dividend. What would your rate of return be if you sell the stock at $45 per share? Ignore interest on margin.A) 25%B) -33%C) 44%D) -42%E) -54%Answer: D Difficulty: DifficultRationale: 300($60)(0.60) = $10,80

26、0 investment; 300($60) = $18,000 X (0.40)= $7,200 loan; Proceeds after selling stock and repaying loan: $13,500 - $7,200 = $6,300; Return = ($6,300 - $10,800)/$10,800 = - 41.67%.18. Assume you sell short 100 shares of common stock at $45 per share, with initial margin at 50%. What would be your rate

27、 of return if you repurchase the stock at $40/share? The stock paid no dividends during the period, and you did not remove any money from the account before making the offsetting transaction.A) 20%B) 25%C) 22%D) 77%E) none of the aboveAnswer: C Difficulty: ModerateRationale: Profit on stock = ($45 -

28、 $40) * 100 = $500, $500/$2,250 (initial investment) =22.22%.19. You sold short 300 shares of common stock at $55 per share. The initial margin is 60%. At what stock price would you receive a margin call if the maintenance margin is 35%?A) $51B) $65C) $35D) $40E) none of the aboveAnswer: B Difficult

29、y: DifficultRationale: Equity = 300($55) * 1.6 = $26,400; 0.35 = ($26,400 - 300P)/300P; 105P = 26,400 - 300P; 405P = 26,400; P = $65.1820. Assume you sold short 100 shares of common stock at $50 per share. The initial margin is 60%. What would be the maintenance margin if a margin call is made at a

30、stock price of $60?A) 40%B) 33%C) 35%D) 25%E) none of the aboveAnswer: B Difficulty: DifficultRationale: $5,000 X 1.6 = $8,000; $8,000 - 100($60)/100($60) = 33%.21. Specialists on stock exchanges perform the following functionsA) Act as dealers in their own accounts.B) Analyze the securities in whic

31、h they specialize.C) Provide liquidity to the market.D) A and B.E) A and C.Answer: E Difficulty: ModerateRationale: Specialists are both brokers and dealers and provide liquidity to the market; they are not analysts. - |22. Shares for short transactionsA) are usually borrowed from other brokers.B) a

32、re typically shares held by the short sellers broker in street name.C) are borrowed from commercial banks.D) B and C.E) none of the above.Answer: B Difficulty: ModerateRationale: Typically, the only source of shares for short transactions is those held by the short sellers broker in street name; oft

33、en these are margined shares.23. Which of the following orders is most useful to short sellers who want to limit their potential losses?A) Limit orderB) Discretionary orderC) Limit-loss orderD) Stop-buy orderE) None of the aboveAnswer: D Difficulty: ModerateRationale: By issuing a stop-buy order, th

34、e short seller can limit potential losses by assuring that the stock will be purchased (and the short position closed) if the price increases to a certain level.24. Shelf registrationA) is a way of placing issues in the primary market.B) allows firms to register securities for sale over a two-year p

35、eriod.C) increases transaction costs to the issuing firm.D) A and B.E) A and C.Answer: D Difficulty: EasyRationale: Shelf registration lowers transactions costs to the firm as the firm may register issues for a longer period than in the past, and thus requires the services of the investment banker l

36、ess frequently.25. NASDAQ subscriber levelsA) permit those with the highest level, 3, to make a market in the security.B) permit those with a level 2 subscription to receive all bid and ask quotes, but not to enter their own quotes.C) permit level 1 subscribers to receive general information about p

37、rices.D) include all OTC stocks.E) A, B, and C.Answer: E Difficulty: EasyRationale: NASDAQ links dealers in a loosely organized network with different levels of access to meet different needs.26. You want to buy 100 shares of Hotstock Inc. at the best possible price as quickly as possible. You would

38、 most likely place a A) stop-loss orderB) stop-buy orderC) market orderD) limit-sell orderE) limit-buy orderAnswer: C Difficulty: EasyRationale: A market order is for immediate execution at the best possible price.27. You want to purchase XYZ stock at $60 from your broker using as little of your own

39、 money as possible. If initial margin is 50% and you have $3000 to invest, how many shares can you buy?A) 100 sharesB) 200 sharesC) 50 sharesd) 500 sharesE) 25 sharesAnswer: A Difficulty: ModerateRationale: .5 = (Q * $60)-$3,000 / (Q * $60); $30Q = $60Q-$3,000; $30Q = $3,000; Q=100.28. A sale by IBM

40、 of new stock to the public would be a(n)A) short sale.B) seasoned new issue offering.C) private placement.D) secondary market transaction.E) initial public offering.Answer: B Difficulty: EasyRationale: When a firm whose stock already trades in the secondary market issues new shares to the public th

41、is is referred to as a seasoned new issue.29. The finalized registration statement for new securities approved by the SEC is calledA) a red herringB) the preliminary statementC) the prospectusD) a best-efforts agreementE) a firm commitmentAnswer: C Difficulty: ModerateRationale: The prospectus is th

42、e finalized registration statement approved by the SEC.30. The minimum market value required for an initial listing on the New York Stock Exchange isA) $2,000,000B) $2,500,000C) $1,100,000D) $60,000,000E) 100,000,000Answer: E Difficulty: ModerateRationale: See Table 3.3.31. In 2005, the price of a s

43、eat on the NYSE reached a high ofA) $1,000,000B) $4,000,000C) $1,750,000D) $2,225,000E) $3,000,000Answer: B Difficulty: ModerateRationale: See Table 3.2.32. The floor broker is best described asA) an independent member of the exchange who owns a seat and handles overload work for commission brokers.

44、B) someone who makes a market in one or more securities.C) a representative of a brokerage firm who is on the floor of the exchange to execute trade.D) a frequent trader who performs no public function but executes trades for himself.E) any counter party to a trade executed on the floor of the excha

45、nge.Answer: A Difficulty: EasyRationale: The floor broker is an independent member of the exchange who handles work for commission brokers when they have too many orders to handle.33. You sell short 100 shares of Loser Co. at a market price of $45 per share. Your maximum possible loss isA) $4500B) u

46、nlimitedC) zeroD) $9000E) cannot tell from the information givenAnswer: B Difficulty: ModerateRationale: A short seller loses money when the stock price rises. Since there is no upper limit on the stock price, the maximum theoretical loss is unlimited.34. You buy 300 shares of Qualitycorp for $30 pe

47、r share and deposit initial margin of 50%. The next day Qualitycorps price drops to $25 per share. What is your actual margin? A) 50%B) 40%C) 33%D) 60%E) 25%Answer: B Difficulty: ModerateRationale: AM = 300 ($25) - .5 (300) ($30) / 300 ($25) = .4035. When a firm markets new securities, a preliminary

48、 registration statement must be filed withA) the exchange on which the security will be listed.B) the Securities and Exchange Commission.C) the Federal Reserve.D) all other companies in the same line of business.E) the Federal Deposit Insurance Corporation.Answer: B Difficulty: EasyRationale: The SE

49、C requires the registration statement and must approve it before the issue can take place.36. In a typical underwriting arrangement the investment banking firmI) sells shares to the public via an underwriting syndicate.J) ) purchases the securities from the issuing company.K) I) assumes the full ris

50、k that the shares may not be sold at the offering price.L) ) agrees to help the firm sell the issue to the public but does not actually purchase the securities.M) I, II, and IIIN) I, III, and IVO) I and IVP) II and IIIQ) I and IIAnswer: A Difficulty: ModerateRationale: A typical underwriting arrange

51、ment is made on a firm commitment basis.37. Which of the following is true regarding private placements of primary security offerings?A) Extensive and costly registration statements are required by the SEC.B) For very large issues, they are better suited than public offerings.C) They trade in second

52、ary markets.D) The shares are sold directly to a small group of institutional or wealthy investors.E) They have greater liquidity than public offerings.Answer: D Difficulty: ModerateRationale: Firms can save on registration costs, but the result is that the securities cannot trade in the secondary m

53、arkets and therefore are less liquid. Public offerings are better suited for very large issues.38. A specialist on the AMEX Stock Exchange is offering to buy a security for $37,50. A broker in Oklahoma City wants to sell the security for his client. The Intermarket Trading System shows a bid price o

54、f $37,375 on the NYSE. What should the broker do?A) Route the order to the AMEX Stock Exchange.B) Route the order to the NYSE.C) Call the client to see if she has a preference.D) Route half of the order to AMEX and the other half to the NYSE.E) It doesnt matter - he should flip a coin and go with it

55、.Answer: A Difficulty: ModerateRationale: The broker should try to obtain the best price for his client. Since the client wants to sell shares and the bid price is higher on the AMEX, he should route the order there.39. You sold short 100 shares of common stock at $45 per share. The initial margin i

56、s 50%. Your initial investment was A) $4,800.B) $12,000.C) $2,250.D) $7,200.E) none of the above.Answer: C Difficulty: ModerateRationale: 100 shares * $45/share * 0,50 = $4,500 * 0,50 = $2,25040. You sold short 150 shares of common stock at $27 per share. The initial margin is 45%. Your initial inve

57、stment was A) $4,800.60.B) $12,000.25.C) $2,250.75.D) $1,822.50.E) none of the above.Answer: D Difficulty: ModerateRationale: 150 shares * $27/share * 0,45 = $4,050 * 0,45 = $1,822.5041. You purchased 100 shares of XON common stock on margin at $60 per share. Assume the initial margin is 50% and the

58、 maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin.A) $42.86B) $50.75C) $49.67D) $80.34E) none of the aboveAnswer: A Difficulty: DifficultRationale: 100 shares * $60 * .5 = $6,000 * 0.5 = $3,000 (loan amo

59、unt); 0.30 = (100P - $3,000)/100P; 30P = 100P - $3,000; -70P = -$3,000; P = $42.8642. You purchased 1000 shares of CSCO common stock on margin at $19 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the st

60、ock pays no dividend; ignore interest on margin A) $12.86B) $15.75C) $19.67D) $13.57E) none of the aboveAnswer: D Difficulty: DifficultRationale: 1000 shares * $19 * .5 = $19,000 * 0.5 = $9,500 (loan amount); 0.30 = (1000P - $9,500)/1000P; 300P = 1000P - $9,500; -700P = -$9,500; P = $13.5743. You pu

61、rchased 100 shares of common stock on margin at $40 per share. Assume the initial margin is 50% and the stock pays no dividend. What would the maintenance margin be if a margin call is made at a stock price of $25? Ignore interest on margin.A) 0.33B) 0.55C) 0.20D) 0.23E) 0.25Answer: C Difficulty: Di

62、fficultRationale: 100 shares * $40/share * 0.5 = $4,000 * 0.5 = $2,000 (loan amount); X = 100($25) - $2,000/100($25); X = 0.20.44. You purchased 1000 shares of common stock on margin at $30 per share. Assume the initial margin is 50% and the stock pays no dividend. What would the maintenance margin

63、be if a margin call is made at a stock price of $24? Ignore interest on margin.A) 0.33B) 0.375C) 0.20D) 0.23E) 0.25Answer: B Difficulty: DifficultRationale: 1000 shares * $30/share * 0.5 = $30,000 * 0.5 = $15,000 (loan amount); X = 1000($24) - $15,000/1000($24); X = 0.375.45. You purchased 100 shares of common stock on margin for $50 per share. The initial margin is 50% and the stock pays no dividend. What would your rate of return be if you sell the stock at $56 per share? Ignore interest on margin.A) 28%B) 33%C) 14%D) 42%E) 24%Answer: E Difficulty: DifficultRationale: 100($50)(