Portfolio Management Quize1

Quize 11. High Color Detergent is issuing new shares of stock which will trade on NASDAQ. If Sue purchases 300 of these shares, the trade will occur in which one of the following markets?   Primary 2. Wilson just placed an order with his broker to purchase 500 of the outstanding shares of GE. This purchase will occur in which one of the following markets?   Secondary 3. Hi-Tek Shoes is a private firm that has decided to issue shares of stock to the general public. This stock issue will be referred to as a(n): initial public offering 4. A firm that specializes in arranging financing for companies is called a(n): investment banking firm 5. The process of purchasing newly issued shares from the issuer and reselling those shares to the general public is called: underwriting 6. A public offering of securities which are offered first to current shareholders is called a(n): rights offer. 7. When a group of underwriters jointly work together to sell a new issue of securities, the underwriters form a(n): syndicate. 8. Which one of the following is the federal agency which regulates the financial markets in the U. S.? Securities and Exchange Commission 9.The document that must be prepared in order to receive approval for a stock offering is called a: prospectus. 10. Which one of the following transactions occurs in the primary market? sale of newly issued shares by the issuer to a shareholder 11. Debt securities promise __.I. a fixed stream of incomeII. a stream of income that is determined according to a specific formulaIII. a share in the profits of the issuing entity I or II only12. A fixed-income security is defined as a long-term debt obligation that pays scheduled fixed payments 13. Which one of the following is classified as a fixed-income security? -year U. S. Treasury security 14. Riverside Metals recently issued some debt that had an original maturity of nine months. This debt is best classified as a(n): money market instrument. Treasury bills are financial instruments issued by __to raise funds. the Federal Government 15. Money market securities are sometimes referred to as â€Å"cash equivalent† because they are safe and marketable. 16. Money Market securities are characterized by _. I. maturity less than one yearII. safety of the principal investmentIII. low rates of return I, II and III 17. Which of the following is not a money market security?Common stock18. Preferred stock is not a money market instrument.18. Money market instruments issued by a corporation are less liquid than those issued by the government.19. Which one of the following represents a residual ownership interest in the issuer? common stock20. An agreement that grants the owner the right, but not the obligation, to buy or sell a specific asset at a specified price during a specified time period is called a(n) option contract.21. The value of a derivative security depends on the value of other related security.22. option contract is a derivative asset.23. An example of a derivative security is a call option on Intel stock23. A futures contract is an agreement: to exchange goods on a specified date in the future at a price that is agreed upon today.24. Great Lakes Farm agreed this morning to sell General Mills 25,000 bushels of wheat six months from now at a price per bushel of $9. 75. This is an exa mple of a:future contract.25. Uptown Jewelers purchased a futures contract on 200 ounces of gold to be exchanged 3-months from now. As the contract holder, Uptown Jewelers: will profit if the price of gold is higher three months from now.26. Which one of the following is the federal agency which regulates the financial markets in the U. S.? Securities and Exchange Commission27. A securities dealer is a(n): trader who buys and sells from his or her inventory.28. The SIPC: protects investors from missing assets when a brokerage firm closes.29. To be considered liquid, a security must be able to be sold quickly with little, if any, price concession.30. Which one of the following best describes a broker? intermediary who arranges trades between a buyer and a seller.31 The NASDAQ is the most important dealer market in the U. S. nd the NYSE is the most important auction market.32. The total dollar return on a share of stock is defined as the: capital gain or loss plus any dividend income3 3. One year ago, you purchased 400 shares of Southern Cotton at $38. 40 a share. During the past year, you received a total of $480 in dividends. Today, you sold your shares for $41. 10 a share. What is your total return on this investment? [$41. 10 – $38. 40 + ($480/400)]/$38. 40 = 10. 16 percent34. Todd purchased 600 shares of stock at a price of $68. 20 a share and received a dividend of $1. 42 per share. After six months, he resold the stock for $71. 0 a share. What was his total dollar return? 600 ? ($71. 30 – $68. 20 + $1. 42) = $2,712 ;35. Which one of the following is generally true concerning securities held in street name? The brokerage firm is the owner of record.36. The bid price is the price at which a dealer is willing to purchase a security.37. The ask price is the price at which a dealer is willing to sell a security.38. The difference between the price at which a dealer is willing to buy, and the price at which a dealer is willing to sell, is called th e bid-ask spread.39. You want to sell shares of stock at the current price.Which type of order should you place? Market40. You purchased XYZ stock at $50 per share. The stock is currently selling at $65. Your gains could be protected by placing a stop-loss order41. An order to sell that involves a preset trigger point is called a stop order.42. If an investor places a stop-loss order the stock will be sold if its price falls to the stipulated level. If an investor places a stop-buy order the stock will be bought if its price rises above the stipulated level.43. An order to buy shares of stock at a stated price or less is called a limit order.44. This morning, Josh sold 800 shares of stock that he did not own. This sale is referred to as a: short sale45. Which one of the following describes a short position? Selling a security that you do not own46. An investor with a long position in a security will make money: if the price of the security increases47. You short-sell 200 shares of T uckerton Trading Co. , now selling for $50 per share. What is your maximum possible loss? Unlimited48. You short-sell 200 shares of Tuckerton Trading Co. , now selling for $50 per share. What is your maximum possible gain ignoring transactions cost?Maximum gain=proceeds-minimum possible replacement cost=200($50)-200($0)=$10,000;49. The minimum equity that must be maintained at all times in a margin account is called the: maintenance margin50. Staci just used $6,000 of cash plus a $3,000 margin loan to purchase $9,000 worth of stock. This is the only transaction in her brokerage account. According to her account balance sheet, she now has account equity of: $6,000;51. Anita wants to buy $10,000 of securities in her margin account. Her advisor has informed her that she must pay a minimum of $7,000 in cash and maintain a minimum equity position of 30 percent.The initial margin requirement is 70 percent and the maintenance margin is 30 percent.52. What is the purpose of a margin call? t o demand funds to increase your margin position53. Sun Lee purchased 1,100 shares of Franklin Metals stock for $16. 80 a share. The stock was purchased with an initial margin of 65 percent. The maintenance margin is 30 percent. The stock is currently selling for $17. 60 a share. What is the minimum dollar amount of equity that he must have in this stock today to avoid a margin call? Minimum equity = 1,100 ? $17. 60 ? .30 = $5,808;54. You recently purchased 100 shares of stock at a cost per share of $23. 0. The initial margin requirement on this stock is 80 percent and the maintenance margin is 50 percent. The stock is currently valued at $17. 90 a share. What is your current margin position? Ignore margin interest. Margin loan = 100 ? $23. 80 ? (1 – . 80) = $476 Current stock value = 100 ? $17. 90 = $1,790Current equity = $1,790 – $476 = $1,314 Current margin = $1,314/$1,790 = 73. 41 percent;55. Ted is an engineer for True Tech and has just discovered a revolutionary m ethod for strengthening metals. He knows this knowledge will add value to True Tech's stock. Ted happens to mention this discovery and its value to his neighbor, Fred.Fred can be charged with insider trading if he: provides this information to a friend who will trade the stock and split the profits with him.56. Which one of the following had the highest average return for the period 1926 – 2009? small-company stocks57. You've borrowed $14,000 on margin to buy shares in Disney, which is now selling at $40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 46%. Two days later, the stock price falls to $38 per share Will you receive a margin call? NO How low can the price of Disney shares fall before you receive a margin call? (700P-$14000)/700P=0. 6 when P=$37. 04or lower ,58. Which one of the following is the federal agency which regulates the financial markets in the U. S.? Securities and Exchange Commission (SEC)59. Over the lo ng term, which one of the following has historically had the LOWEST average annual rate of return? Long Term Government Bonds60. Which one of the following is the best definition of a money market instrument? debt issued by the government or a corporation that matures in one year or less61. Preferred stock is not a money market instrument62. Money market securities are sometimes referred to as â€Å"cash equivalent† because they are safe and marketable63. A fixed-income security is defined as: a long-term debt obligation that pays scheduled fixed payments.64. Liquidity RISK is defined as: Not being able to sell an investment conveniently and at a reasonable price. 6565. A financial asset that represents a claim on another financial asset is classified as a derivative asset.66. Uptown Jewelers purchased a futures contract on 200 ounces of gold to be exchanged 3-months from now. As the contract holder, Uptown Jewelerswill profit if the price of gold is higher three months from now.