Fundamentals of Investments 3rd Edition Alexander Test Bank
Fundamentals of Investments 3rd Edition Alexander Test Bank
Fundamentals of Investments 3rd Edition Alexander Test Bank
Chapter 2
Chapter 2
EASY
B 3. The type of order in which the broker attempts to fill the order the day in
which it is entered is known as a ____ order.
a. market
b. day
c. limit
d. stop
C 7. The minimum percentage of the purchase price that must come from the
investor’s own funds is known as the
a. maintenance margin
b. margin account
c. initial margin requirement
d. debit balance
B 8. When an investor sells a security first and buys it back later, it is known as
a. margin selling
b. a short sale
c. discounting
d. a wash
A 9. The trading rule which states that a short sale must be made on a plus- or
zero-tick is known as the
a. up-tick rule.
b. down-tick rule.
c. maintenance margin.
d. circuit breaker.
D 10. If the broker does not hold the stock that a client wishes to sell short,
another method to obtain the securities for the sale is through
a. margin buying
b. stock swaps
c. securities lending
d. credit buying
C 11. When multiple margin purchases are made, the transactions are ______ in
one account in order to determine whether the account is undermargined,
restricted, or overmargined.
a. collateralized
b. indexed
c. aggregated
d. arbitraged
9
Chapter 2
B 14. When an investor places an order with a brokerage firm, he or she does
not need to specify
a. name of the security's company.
b. market on which the security is traded.
c. type of order.
d. whether to buy or to sell shares.
10
Buying and Selling Securities
D 21. An investor's securities held at a brokerage firm are insured for a value of
at least
a. $2,500,000.
b. $1,000,000.
c. $100,000.
d. $500,000.
D 25. To be certain that order will be executed in the market, an investor will
place a
a. limit order.
b. stop order.
c. stop limit order.
d. market order.
11
Chapter 2
B 28. An investor uses 50% margin to invest, and the stock price rises by 10%.
His rate of return (ignoring interest charges and dividends) would be
a. 50%.
b. 20%.
c. 10%.
d. 30%.
MEDIUM
B 31. After purchasing common stock on margin, an investor can calculate his
Actual Margin by
a. loan/equity.
b. equity/market value.
c. market value/loan.
d. loan/market value.
D 33. An investor uses 50% margin to invest and the stock price drops by 15%.
His rate of return (ignoring interest charges and dividends) would be
a. -10%.
b. -20%.
c. -30%.
d. -40%.
12
Buying and Selling Securities
C 34. An investor uses 70% margin to buy stock with a market price of $50. If
the price goes to $60, the investor's rate of return is
a. 17%.
b. 20%.
c. 29%.
d. 34%.
D 35. If the initial margin requirement is lowered, the margin investor will
a. not receive dividends.
b. pay a higher interest rate.
c. borrow less dollars.
d. have an increased volatility in the potential rate of return.
A 36. An investor who has purchased several stocks on margin through one
brokerage house has his margin deposit requirements calculated on
a. the aggregate or total present market value.
b. the lowest value stock.
c. the original purchase price of each stock.
d. each individual stock's present market value.
B 37. You purchase 400 shares of stock at a price of $20 per share. Using the
minimum margin requirement of 70%, your equity would be
a. $ 2,400.
b. $ 5,600.
c. $ 7,200.
d. $ 8,000.
A 38. A broker buys 500 shares of IBM stock at $80 a share on margin. The
initial margin is 50% and the maintenance margin requirement is 30%. To
what price may the IBM stock fall before the broker receives a margin
call?
a. $57.14
b. $56.08
c. $48.00
d. $52.85
B. 39. A broker buys 200 shares of Walmart on margin at $70 per share. The
initial margin is 50% and the annual interest on margin loans is 8%. The
stock price rises to $90 over the next year. What is the broker’s return on
the investment?
a. 24.6%
b. 49.1%
c. 28.6%
d. 39.1%
13
Chapter 2
C 40 ___ orders are canceled if the broker is unable to fully execute them
immediately.
a. Good-till-canceled
b. Open
c. Fill-or-kill
d. Discretionary
D 41. A broker places an order to sell Intel short which is currently selling for
$189.50. The lowest price at which the broker’s order can be executed is
a. $189
b. $189.25
c. $189.75
d. $189.50
A 42. The advantage of market orders versus limit orders is the former offers
immediacy of execution at an uncertain price while the latter offers
uncertain execution with a ______ price.
a. bounded
b. unbounded
c. certain
d. uncertain
C 44. The Securities Exchange Act of 1934 set a minimum percentage of the
purchase price that must come from the investor’s own fund to avoid
a. market conditions that restrain activity.
b. excessive short sales in the market.
c. excessive margin buying.
d. market conditions that increase volatility.
14
Buying and Selling Securities
A 46. According to the actual margin equation, it can be seen that at the time of
the margin purchase, the actual and the initial margin are the _____.
a. same
b. same as the maintenance margin
c. loan value of the assets
d. collateral on the margin account
C 48. Call money rate is the interest rate paid by brokerage firms to banks on
a. loans used to finance short purchases by the brokerage firm’s
customers.
b. lines of credit for margin purchases
c. loans used to finance margin purchases by the brokerage firm’s
customers.
d. initial margin deposits.
A 50. One method the exchange has to prevent insolvency in margin accounts is
to place the investor’s account on a ______ status.
a. restricted
b. overmargined
c. undermargined
d. unrestricted
DIFFICULT
C 51. You purchase shares with a market price of $60 using an 80% margin
requirement. If the margin maintenance is 30%, before you would have a
margin call the market price could fall to
a. $8.
b. $12.
c. $17.
d. $24.
15
Fundamentals of Investments 3rd Edition Alexander Test Bank
Chapter 2
C 52. You purchase 200 shares with a market price of $60 per share using an
80% margin requirement. The market price goes to $80 per share. The
amount of your margin deposit you could withdraw is
a. $4,000.
b. $2,800.
c. $800.
d. $1,200.
A 54. An investor purchases 200 shares at $60 per share using an 80% margin
requirement. The margin loan is at a 10% rate and in one year the price is
at $80 per share. Ignoring dividends, the one year rate of return is
a. 39%.
b. 33%.
c. 25%.
d. 18%.
C 55. An investor purchases 200 shares at $60 per share using an 80% margin
requirement. The margin loan is at a 10% rate, and in one year the price is
at $50 per share. Ignoring dividends, the one year rate of return is
a. +18%.
b. -12%.
c. -23%.
d. +36%.
D. 57. You purchase 200 shares of XYZ on margin at $80 per share. You also
short sell 100 shares of ABC at $30 per share. With an initial margin
requirement of 70%, find your original equity:
a. $ 7,800.
b. $ 2,100.
c. $ 5,800.
d. $13,300.
16