投资学第7版Test Bank答案03.docx

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）areusuallyborro