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Investments Final
| Question | Answer |
|---|---|
| Market Timing is the: | Buying and selling of securities in anticipation of the overall direction of the market. |
| Asset allocation is the: | Distribution of investment funds among various broad asset classes. |
| Jesse is researching chemical companies in an effort to determine which company's stock he should purchase. This process is known as: | Security Selection |
| A roth IRA: | Invests after-tax dollars |
| A brokerage account in which purchases can be made using credit is referred to as which type of account? | Margin |
| Kate just purchased $7,000 worth of stock. She paid $5,000 in cash and borrowed $2,000. In this example, the term margin refers to: | The percentage of the purchase that was paid in cash |
| Which one of the following best describes the term "initial margin"? | Amount of cash that must be paid to purchase a security on margin |
| The minimum equity that must be maintained at all times in a margin account is called the: | Maintenance margin |
| When your equity position in a security is less than the required amount, your brokerage firm will issue a: | Margin Call |
| 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: | Hypothecation |
| Staci owns 1,000 shares of stock in a margin account. Those shares are most likely held in: | street name |
| This morning, Josh sold 800 shares of stock that he did not own. This sale is referred to as a: | Short sale |
| The amount of common stock held in short positions is referred to as the short | interest |
| A company that owns income-producing real estate such as an apartment complex or a retail shopping center is called a(n): | REIT |
| An investor who has a resource constraint: | Has insufficient funds to purchase a security |
| To be considered liquid, a security must: | be able to be sold quickly with little, if any, price concession |
| Wythe is trying to decide whether he wants to purchase shares in General Motors, Ford, or Honda, all of which are auto manufacturers. Wythe is making a(n) _____ decision | Security Selection |
| Brooke has decided to invest 55 percent of her money in large company stocks, 40 percent in small company stocks, and 5 percent in cash. This is a(n) _____ decision. | Asset allocation |
| Kay plans to retire in two years and wishes to liquidate her account at that time. Kay has a _____ constraint | horizon |
| The SIPC does what? | protects investors from missing assets when a brokerage firm closes. |
| The determination of which individual stocks to purchase within a particular asset class is referred to as: | security selection |
| An investor who follows a fully active strategy will | move money between asset classes as well as try to select the best performers in each class |
| Which one of the following decisions falls under the category of asset allocation | Determining that thirty percent of a portfolio should be invested in bonds |
| Ted has no investment experience. He has decided to work with a professional who can help explain the market to him and manage his funds for him. Ted needs services offered by a: | Full service Broker |
| Which one of the following statements is correct? | Full service brokers frequently provide financial planning services to clients. |
| Martin has an investment account with William, who is a broker with xy Brokerage. Martin believes that William has mishandled his account by churning it. If he files a complaint against William seeking compensation, the case will most likely be decided by | An arbitration panel |
| You currently have $5,000 in cash in your brokerage account. You decide to spend $8,000 to purchase shares of stock and borrow $3,000 from your broker to do so. Which type of brokerage account do you have? | Margin |
| Which one of the following statements is correct | Margin is equal to account equity divided by the value of the securities owned |
| 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 |
| Amy just purchased $12,000 of stock. She paid $9,000 in cash and borrowed the remaining $3,000 needed to pay for this purchase. If you constructed a balance sheet reflecting this transaction, the total assets would be: | 12,000 |
| 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 min equity position of 30%. The initial margin requirement is __ % and the maintenance margin is _ % | 70 ; 30 |
| The absolute minimum initial margin requirement is set by the | Federal reserve |
| You open a margin account with a local broker and purchase shares of stock. The house maintenance margin requirement for your account is set by | your broker |
| If you opt to purchase shares of stock on margin rather than with cash, you | Increase your maximum potential rate of return |
| What is the purpose of a margin call? | to demand funds to increase your margin position |
| If you ignore a margin call, your broker | may sell some of your securities to repay the margin loan |
| Lauren has a margin account with a brokerage firm, RL Brokers. She recently purchased 200 shares of Abbot Industries common stock that trades on the (NYSE). These shares are held in street name and are registered under the name of: | RL Brokers |
| Which one of the following is generally true concerning securities held in street name | the brokerage firm is the owner of the record |
| Sarah has a brokerage account with Jeff, who is a money manager with... Sarah pays an all-inclusive annual fee to the firm and Jeff manages her funds. She pays no trading costs or commissions. Which one best describes this type of account? | Wrap |
| A discretionary account: | authorizes a broker to trade securities on your behalf |
| An investor with a long position in a security will make money | if the price of the security increases |
| Which one of the following describes a short position | Selling a security that you do not own |
| On August 8 of this year, Brent sold 500 shares of ADO stock for $24 a share. On September 6 of this year, he purchased 500 shares of ADO stock to cover his position. The transaction on August 8 | was a short sale |
| a short sale: | involves the borrowing of securities |
| If you benefit when a security decreases in value, you have a _____ position in the security | Short |
| The maximum loss you can incur on a short sale is | unlimited |
| What is the maximum loss you can incur if you have a long position on a stock in a cash account? | the initial investment |
| Chapter 2 done | yeet |
| 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 less |
| A fixed-income security is defined as | a long-term debt obligation that pays scheduled fixed payments |
| The annual interest payment divided by the current price of a bond is called the | current yield |
| A security originally sold by a business or government to raise money is called a(n) | Primary asset |
| A financial asset that represents a claim on another financial asset is classified as a _____ asset. | derivative |
| A futures contract is an agreement: | to exchange goods on a specified date in the future at a price that is agreed upon today. |
| 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) _____ contract | Option |
| A call option is an agreement that: | Gives the buyer the right to purchase an asset at some point in the future |
| A contract that grants its buyer the right, but not the obligation, to sell an asset at a specified price is called a: | Put option |
| The price paid to purchase an option contract is called the | option premium |
| The amount of money per share that will be received when a put option on stock is exercised is called the _____ price | strike |
| 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 |
| money market instruments | may be sold on a discount basis |
| Money market instruments issued by a corporation | are less liquid than those issued by the government. |
| Which one of the following is classified as a fixed-income security | 2-year US treasury security |
| Which one of the following sentences is correct concerning fixed-income securities? | The price of a fixed-income security is inversely related to the current yield |
| Assume a semi-annual coupon bond matures in 3 years, has a face value of $1,000, a current market price of $989, and a 5 percent coupon. Which one of the following statements is correct concerning this bond? | The current yield exceeds the coupon rate |
| Bond trades are reported | on TRACE |
| Which one of the following represents a residual ownership interest in the issuer? | common stock |
| Which one of the following statements related to common stock is correct | Corporations have the right to discontinue paying dividends |
| Preferred stock | may or may not be cumulative |
| Preferred stock | is treated like equity for both tax and accounting purposes. |
| Which one of the following is a derivative asset? | Option contract |
| 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 example of a: | Futures contract |
| 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 |
| futures contracts: | can be resold |
| At the time a futures contract is written | the underlying asset is specifically identified |
| Which of the following are generally included in a standardized futures contract? I. delivery date II. quantity to be delivered III. specific item to be delivered IV. delivery location | I, II, III, and IV |
| Harvest Fields sold ten September futures contracts on oats. Harvest Fields will | both receive payment and deliver in September |
| Investing in a futures contract | can be offset by taking an opposing position |
| If you want the right, but not the obligation, to buy a stock at a specified price you should | buy a call |
| If you want the right, but not the obligation, to sell a stock at a specified price you should | buy a put |
| If you are willing to buy a stock and you wish to receive the option premium you should: | sell a put |
| If you are willing to sell a stock and wish to receive the option premium you should | sell a call |
| A European put option grants the holder the right to | sell the underlying asset at the strike price only on the expiration date. |
| An American call option grants the holder the right to | buy the underlying security at a stated price on or before the expiration date. |
| When a put option is exercised, the: | seller of the option must buy the underlying asset and pay the strike price. |
| You will earn a profit as the owner of a call option if the price of the underlying asset: | increases |
| The seller of a naked call is betting that the price of the underlying asset will | decrease |
| Options expire on the _____ of the expiration month | Saturday following the 3rd Friday |
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