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BUS-440 > Quiz 1 > Flashcards

Quiz 1 Flashcards

1
Q 
Wilson just placed an order w/ his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?
A. Primary
B. Secondary
C. Third
D. Fourth
E. Fifth
A

B. Secondary

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2
Q 
A firm that specializes in arranging financing for companies by taking them to the public markets is called a(n):
A. Floor broker
B. Investment banking firm
C. Investment dealer
D. Private broker
E. Marketing firm
A

B. Investment banking firm

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3
Q 
The financing provided for new ventures that are frequently high risk investments is referred to as venture
A. Capital
B. Leverage
C. Risk funds
D. Funding
E. Investing
A

A. Capital

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4
Q 
When a group of underwriters jointly work together to sell a new issue of securities, the underwriters form a(n):
A. Underwriting cartel
B. Market union
C. Venture capital association
D. Dutch market
E. Syndicate
A

E. Syndicate

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5
Q 
The document that must be prepared in order to receive approval for a stock offering is called a 
A. Tombstone
B. Prospectus
C. Offering agreement
D. Regulatory report
E. Offering paper
A

B. Prospectus

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6
Q 
An owner of a trading license on the NYSE is called a member
A. Broker
B. Shareholder
C. Member
D. Trader
E. Dealer
A

C. Member

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7
Q 
The party who serves as a dealer for a few securities on an exchange floor and is obligated to maintain an orderly market for those securities is called a
A. Floor trader
B. Designated market maker
C. Floor broker
D. Member
E. House broker
A

B. Designated market maker

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8
Q 
9. The location on an exchange floor where a particular security trades is called a(n):
A. Specialist's post
B. Broker's terminal
C. Floor spot
D. Exchange spot
E. Market pit
A

A. Specialist’s post

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9
Q 
10. You want to sell shares of stock at the current price in general.  Which type of order should you place?
A. Limit
B. Post
C. Market
D. Short
E. Stop
A

C. Market

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10
Q 
11. An order to buy shares of stock at a stated price or less is called a \_\_\_\_\_\_\_\_\_ order.
A. Limit
B. Stop
C. Market
D. Short
E. Bid
A

A. Limit

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11
Q 
An order to sell that involves a preset trigger point is called a \_\_\_\_\_\_\_ order.
A. Limit
B. Day
C. Stop
D. Short
E. Market
A

C. Stop

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12
Q 
13. Which of the following types of indexes is a stock market index in which stocks are held in proportion to their share price?
A. Balanced
B. Market-weighted
C. Dollar weighted
D. Price-weighted
E.Value-weighted
A

D. Price-weighted

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13
Q 
14. Anna is an individual investor.  She purchases shares at the \_\_\_\_\_\_ price and sells at the \_\_\_\_\_\_\_ price.
A. Asked, bid
B. Average, asked
C. Bid, asked
D. bid, average
E. asked, average
A

A. Asked, bid

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14
Q 
The dividend yield is defined as the annual dividend expressed as a percentage of the:
A. Average stock price
B. Initial stock price
C. Ending stock price
D. Total annual return
E. Capital gain
A

B. Initial stock price

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15
Q 
16. When the total return on an investment is expressed on a per-year basis, it is called the:
A. Capital gains yield
B. Dividend yield
C. Holding period return
D. Effective annual return
E. Initial return
A

D. Effective annual return

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16
Q 
17. The rate of return earned on a U.S. Treasury bill is frequently considered the:
A. Risk premium
B. Deflated rate of return
C. Risk-free rate
D. Expected rate of return
E. Market rate of return
A

C. Risk-free rate

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17
Q

The historical average risk-free rate of return is:

A

3.7%

18
Q 
The additional return earned for accepting risk is called the :
A. Inflated return
B. Capital gains yield
C. Real return
D. Risk less rate
E. Risk premium
A

E. Risk premium

19
Q 
19. If you multiply the number of shares of outstanding stock for a firm by the price per share, you are computing the firm's:
A. Equity ratio
B. Total book value
C. Market share
D. Market capitalization
E. Time value
A

D. Market capitalization

20
Q 
Which one of the following had the highest risk premium for the period 1926-2009?
A. U.S. Treasury bills
B. Long-term government bonds
C. Large-company stocks
D. Small-company stocks
E. Intermediate term government bonds
A

D. Small-company stocks

21
Q 
21. The average rate of return on large-company stocks for the period 1926-2012 was:
A. 6.7 %
B. 7.9%
C. 8.5%
D. 11.7%
E. 13.6%
A

D. 11.7%

22
Q
  1. A Roth IRA:
    A. Is a form of tax-deferred account
    B. Funds are taxed at the time you begin withdrawals
    C. Are well suited to investors nearing retirement
    D. Invest after tax dollars thus no tax deduction is taken
    E. Is the type of account offered by most employers
A

D. Invests after tax dollars thus no tax deduction is taken

23
Q 
23. A brokerage account in which purchases can be made using credit is referred to as which type of account?
A. Clearing
B. Funds available
C. Cash
D. Call
E. Margin
A

E. Margin

24
Q 
The minimum equity that must be maintained at all times in a margin account is called the:
A. Initial margin
B. Initial equity position
C. Maintenance margin
D. Call requirement
E. Margin call
A

C. Maintenance margin

25
Q 
When your equity position in a security is less than the required amount, your brokerage firm will issue a:
A. Margin call
B. Margin certificate
C. Cash certificate
D. Limit order
E. Leverage call
A

A. Margin call

26
Q 
26. Stuart purchased 300 shares of Microsoft stock which he has pledged to his broker as collateral for the loan in his margin account.  This process of pledging securities is called:
A. Margin calling
B. Hypothecation
C. Leveraging
D. Maintaining the margin
E. Street securitization
A

B. Hypothecate on

27
Q 
27. Staci owns 1000 shares of stock in a margin account.  Those shares are most likely held in:
A. Transit
B. Her registered name
C. Street name
D. A wrap account
E. A discretionary account
A

C. Street name

28
Q 
28. Ted recently inherited a large sum of money that he wants to invest in the stock market.  Since he has no investment experience, he has decided that he would like to work with a professional who can explain the market to him and also manage his funds for him.  Ted most likely needs the services offered by a(n):
A. Deep discount broker
B. Discount broker
C. Full service broker
D. Online broker
E. Cyber broker
A

C. Full service broker

29
Q 
29. Staci just used $6000 of cash plus a $3000 margin loan to purchase $9000 worth of stock.  This is the only transaction in her brokerage accoun.  According to her account balance sheet, she now has account equity of:
A. $3K
B. $6K
C. $9K
D. $12K
E. $15K
A

B. $6K

30
Q
  1. If you ignore a margin call, your broker:
    A. Will seize all the assets in your account
    B. Will close your account
    C. May place a short sale on your behalf to cover the amount of the loan
    D. May sell some of your securities to repay the margin loan
    E. Will increase both your margin loan and the rate of interest on that loan
A

D. May sell some of your securities to repay the margin loan

31
Q 
31. On August 8 of this year, Brent sold 500 shares of ADO stock for $24on 9/6 this year, he purchased 500 shares of ADO stock to cover his position.  The transaction on 8/8:
A. Was a short sale
B. Was a margin trade
C. Was a wrap transaction
D. Created a long transaction
E. Was a pooling transaction
A

A. Was a short sale.

32
Q
  1. The maximum loss you can incur on a short sale is:
    A. Limited to your initial equity
    B. Limited to your initial margin
    C. Limited to the margin loan plus interest
    D. Zero
    E. Unlimited
A

E. Unlimited

33
Q
  1. If your brokerage account is a margin account and you have 10000 of your own cash in it, how much may you borrow to buy securities?
    A. $20K
    B. $15K
    C. $10K
    D. $5K
    E. None, a margin account only applies to short sales
A

C. $10K

34
Q 
A company is issuing new shares of stock which will trade on NASDAQ.  If Sue purchases 300 of these shares through an IPO, the trade will occur in which one of the following markets?
A. Primary
B. Secondary
C. Third
D. Fourth
E. Over-the-counter
A

A. Primary

35
Q

What is the price earnings multiple

A

The current market price of a company’s share divided by earnings per share

36
Q

What is a tombstone

A

It is a public announcement of a forthcoming IPO, typically published in a newspaper, providing the required details about a company’s stock and financiers.

37
Q

What is a circuit breaker on the NYSE

A

Procedure in which all trading ceases for 15 minutes, set to occur when the stock market falls to a predetermined level.

38
Q

What is the role of the NYSE specialist

A

Acts as an intermediary b/w buyers and sellers
Obligated to maintain an orderly, fair market
Can act as dealers for their own accounts by buying and selling in order to establish normalcy/order to their market.
Can see orders coming in before they are public

39
Q

Explain how an IPO is developed and launched

A
  1. Firm hires investment bank/s
  2. Type of securities to be issued and associated details are determined, stipulations of the underwriting agreement, estimate potential gain
  3. Investment bank/syndicate file registration w/ SEC
  4. SEC investigates to ensure all relevant, material financial information has been disclosed
  5. IPO date determined
  6. Prospectus drawn up (red herring)
  7. Investment bank purchases stock from firm at agreed upon price
  8. Investment bank/syndicate sells stock it bought from firm to the public for a profit (the spread- which is the difference b/w the price paid to the firm for the stock and the price at which the stock is sold to the public)
40
Q

What is the P/E ratio

A

It’s the price per share divided by the earnings per share

BUS-440 (5 decks)

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