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Chapter 03 - Securities Markets
Chapter 03
Securities Markets

Multiple Choice Questions

1. Underwriting is one of the services provided by _____.
. the S!C
". invest#ent bankers
C. pub$ic$y traded co#panies
%. &%'C

(. Under fir# co##it#ent underwriting the ______ assu#es the fu$$ risk that the shares
cannot be so$d to the pub$ic at the stipu$ated offering price.
. red herring
". issuing co#pany
C. initia$ stockho$der
%. underwriter

3. !)p$icit costs of an '*+ tend to be around ______ of the funds raised.
. 1,
". -,
C. 1.,
%. (.,

/. "arnegat 0ight so$d (001000 shares in an initia$ pub$ic offering. 2he underwriter3s e)p$icit
fees were 4501000. 2he offering price for the shares was 43.1 but i##ediate$y upon issue1 the
share price 6u#ped to 4/3. 7hat is the best esti#ate of the tota$ cost to "arnegat 0ight of the
e8uity issue9
. 4501000
". 411(501000
C. 4(13501000
%. 411:501000

3-1
Chapter 03 - Securities Markets
.. red herring beco#es a prospectus when ____.
. the pre$i#inary registration state#ent is approved by the S!C
". the '*+ is co#p$ete
C. the offering is seasoned
%. the $ockup period e)pires

:. *rivate p$ace#ents can be advantageous rather than pub$ic issue because ______.
'. private p$ace#ents are cheaper to #arket than pub$ic issues
''. private p$ace#ents #ay sti$$ be so$d to the genera$ pub$ic under S!C ;u$e 1//
'''. private$y p$aced securities trade on secondary #arkets
. ' on$y
". ' and ''' on$y
C. '' and ''' on$y
%. '1 '' and '''

-. $eve$ _____ subscriber to the <S%= syste# #ay enter bid and ask prices.
. 1
". (
C. 3
%. /

>. 7hich one of the fo$$owing state#ents about '*+s is not true9
. '*+s genera$$y underperfor# in the short run.
". '*+s often provide very good initia$ returns to investors.
C. '*+s genera$$y provide superior $ong-ter# perfor#ance as co#pared to other stocks.
%. Shares in '*+s are often pri#ari$y a$$ocated to institutiona$ investors.

5. 2he issue process where investors sub#it bids for a new issue and the shares in an '*+ are
a$$ocated to the highest bidders unti$ the entire issue is so$d is ca$$ed a
. best efforts offer
". %utch auction
C. secondary offering
%. fir# co##it#ent offer

3-(
Chapter 03 - Securities Markets
10. 2he <?S! recent$y ac8uired the !C< _______ and <S%= recent$y ac8uired the !C<
________.
. [email protected] 'nstinet
". '[email protected] rchipe$ago
C. '[email protected] 'nstinet
%. [email protected] !urone)t

11. ;ank the fo$$owing types of #arkets fro# $east integrated and organiAed to #ost
integrated and organiAed.
'. "rokered #arkets
''. Continuous auction #arkets
'''. %ea$er #arkets
'B. %irect search #arkets
. 'B1 ''1 '1 '''
". '1 '''1 'B1 ''
C. ''1 '''1 'B1 '
%. 'B1 '1 '''1 ''

1(. ______ drop in the %ow Cones 'ndustria$ verage wou$d stop trading for the day.
. 10,
". (0,
C. 30,
%. /0,

13. 7hich one of the fo$$owing is not an e)a#p$e of a brokered #arket9
. ;esidentia$ rea$ estate #arket
". Market for $arge b$ock security transactions
C. *ri#ary #arket for securities
%. <S%=

3-3
Chapter 03 - Securities Markets
1/. Circuit breakers wi$$ be i#posed if the %ow Cones 'ndustria$ verage drops by a
#ini#u# of ______ by (.30 p#.
. 10,
". (0,
C. 30,
%. /0,

1.. *urchases of new issues of stock take p$ace _________.
. at the desk of the &ed
". in the pri#ary #arket
C. in the secondary #arket
%. in the #oney #arkets

1:. 'nitia$ #argin re8uire#ents on stocks are set by _________.
. the &edera$ %eposit 'nsurance Corporation
". the &edera$ ;eserve
C. the <ew ?ork Stock !)change
%. the Securities and !)change Co##ission

1-. 7hich one of the fo$$owing types of #arkets re8uires the greatest $eve$ of trading activity
to be cost effective9
. "roker #arket
". %ea$er #arket
C. Continuous auction #arket
%. %irect search #arket

1>. 7hich one of the fo$$owing is a fa$se state#ent regarding <?S! specia$ists9
. +n a stock e)change a$$ buy or se$$ orders are e)ecuted at a specia$ist3s post on the
e)change
". Specia$ists can not trade for their own accounts
C. Specia$ists earn inco#e fro# co##issions and spreads in stock prices
%. Specia$ists stand ready to trade at 8uoted bid and ask prices

3-/
Chapter 03 - Securities Markets
15. ;estrictions on trading invo$ving insider infor#ation app$y to _________.
'. corporate officers and directors
''. #a6or stockho$ders
'''. re$atives of corporate directors and officers
. ' on$y
". ' and '' on$y
C. '' and ''' on$y
%. '1 ''1 and '''.

(0. n order to buy or se$$ a security at the current price is a ______________.
. $i#it order
". #arket order
C. stop $oss order
%. stop buy order

(1. 7hen U.S. stock prices were converted fro# fractions to deci#a$s in (001 the #ini#u#
bid-ask spread charged by dea$ers ________.
. increased
". decreased
C. re#ained the sa#e
%. fe$$ at first1 but then increased

((. 2he #arket co$$apse of 15>- pro#pted ________________________.
. "$ue Sky $aws
". circuit breakers to ha$t trading during #arket crises
C. the Securities 'nvestor *rotection ct
%. the <ationa$ Securities Market ct

3-.
Chapter 03 - Securities Markets
(3. 'f an investor p$aces a _________ order the stock wi$$ be so$d if its price fa$$s to the
stipu$ated $eve$. 'f an investor p$aces a __________ order the stock wi$$ be bought if its price
rises above the stipu$ated $eve$.
. [email protected] stop-$oss
". #[email protected] $i#it
C. [email protected] stop-buy
%. $i#[email protected] #arket

(/. +n a given day a stock dea$er #aintains a bid price of 41000..0 for a bond and an ask
price of 41003.(.. 2he dea$er #ade 10 trades which tota$ed .00 bonds traded that day. 7hat
was the dea$er3s gross trading profit for this security9
. 4113-.
". 4.00
C. 4(-.
%. 411/.0

(.. dvantages of !C<s over traditiona$ #arkets inc$ude a$$ but which one of the fo$$owing9
. 0ower transactions costs
". nony#ity of the participants
C. S#a$$ a#ount of ti#e needed to e)ecute and order
%. bi$ity to hand$e very $arge orders

(:. 2he __________ was estab$ished to protect investors fro# $osses if their brokerage fir#s
fai$.
. C&2C
". S!C
C. S'*C
%. 'M;

(-. 7hen #atching orders fro# the pub$ic a specia$ist is re8uired to use the _______.
. $owest outstanding bid price and highest outstanding ask price
". highest outstanding bid price and highest outstanding ask price
C. $owest outstanding bid price and $owest outstanding ask price
%. highest outstanding bid price and $owest outstanding ask price

3-:
Chapter 03 - Securities Markets
(>. 2he process of po$$ing potentia$ investors regarding their interest in a forthco#ing initia$
pub$ic offering D'*+E is ca$$ed ________.
. interest bui$ding
". book bui$ding
C. #arket ana$ysis
%. custo#er identification

(5. 2he bu$k of #ost initia$ pub$ic offerings D'*+sE of e8uity securities go to ___________.
. institutiona$ investors
". individua$ investors
C. the fir#3s current shareho$ders
%. day traders

30. 'nitia$ pub$ic offerings D'*+sE are usua$$y ___________ re$ative to the $eve$s at which
their prices stabi$iAe after they begin trading in the secondary #arket.
. over priced
". correct$y priced
C. under priced
%. #ispriced but without any particu$ar bias

31. ccording to 0oughran and ;itter1 initia$ pub$ic offerings tend to e)hibit __________
perfor#ance initia$$y1 and __________ perfor#ance over the $ong ter#.
. [email protected] good
". [email protected] bad
C. [email protected] good
%. [email protected] bad

3--
Chapter 03 - Securities Markets
3(. Specia$ists try to #aintain a narrow bid-ask spread because _______.
'. 'f the spread is too $arge they wi$$ not participate in as #any trades1 $osing co##ission
inco#e
''. 2he e)change re8uires specia$ists to #aintain price continuity
'''. Specia$ists are non-profit entities designed to faci$itate #arket transactions rather than
#ake a profit
. ' on$y
". ' and '' on$y
C. '' and ''' on$y
%. '1 '' and '''

33. 'n a __________ underwriting arrange#ent1 the underwriter assu#es the fu$$ risk that
shares #ay not be so$d to the pub$ic at the stipu$ated offering price.
. best efforts
". fir# co##it#ent
C. private p$ace#ent
%. none of the above

3/. 2he ______________ is the #ost i#portant dea$er #arket in the U.S. and the
______________ is the #ost i#portant auction #arket.
. <[email protected] <S%=
". <S%[email protected] <?S!
C. [email protected] +2C
%. [email protected] <?S!

3.. 2he inside 8uotes on a $i#it order book wou$d be co#prised of the ______.
. highest bid price and the $owest ask price
". $owest bid price and the $owest ask price
C. $owest bid price and the highest ask price
%. highest bid price and the highest ask price

3->
Chapter 03 - Securities Markets
3:. 2he __________ syste# enab$es e)change #e#bers to send orders direct$y to a specia$ist
over co#puter $ines.
. &F
". %irect *$us
C. <S%=
%. SU*!;%+2

3-. 2he fu$$y auto#ated trade-e)ecution syste# insta$$ed on the <?S! is ca$$ed
. &F
". %irect *$us
C. <S%=
%. SU*!;%+2

3>. <asda8 now offers three $isting options. 2he $argest1 #ost active$y traded fir#s are on the
. <asda8 G$oba$ Market
". <asda8 G$oba$ Se$ect Market
C. <asda8 Capita$ Market
%. <asda8 *ink Sheet Stocks

35. ppro)i#ate$y __________ of trades invo$ving shares issued by fir#s $isted on the <ew
?ork Stock !)change actua$$y take p$ace on the <ew ?ork Stock !)change.
. .0,
". -.,
C. >0,
%. 5.,

/0. 2he _________ price is the price at which a dea$er is wi$$ing to purchase a security.
. bid
". ask
C. c$earing
%. sett$e#ent

3-5
Chapter 03 - Securities Markets
/1. 2he _________ price is the price at which a dea$er is wi$$ing to se$$ a security.
. bid
". ask
C. c$earing
%. sett$e#ent

/(. 2he difference between the price at which a dea$er is wi$$ing to buy1 and the price at
which a dea$er is wi$$ing to se$$1 is ca$$ed the _________.
. #arket spread
". bid-ask spread
C. bid-ask gap
%. #arket variation

/3. 2he bid-ask spread e)ists because of _______________.
. #arket inefficiencies
". discontinuities in the #arkets
C. the need for dea$ers to cover e)penses and #ake a profit
%. $ack of trading in thin #arkets

//. "oth the <?S! and <asda8 have $ost #arket share to !C<s in recent years. *art of
<asda83s response to the growth of !C<s has been to _______.
'. *urchase 'nstinet1 a #a6or !C<
''. !nab$e auto#atic trade e)ecution through its new Market Center
'''. Switch fro# stock ownership to #utua$ ownership
. ' on$y
". '' and ''' on$y
C. ' and '' on$y
%. '1 '' and '''

3-10
Chapter 03 - Securities Markets
/.. 2he cost of buying and se$$ing a stock inc$ude _________.
'. broker3s co##issions
''. dea$er3s bid-asked spread
'''. price concessions investors #ay be forced to #ake
. ' and '' on$y
". '' and ''' on$y
C. ' and ''' on$y
%. '1 '' and '''

/:. 2rades on the __________ are the #ost $ike$y to trade inside the inside 8uotes than in
other #arkets.
. <?S!
". <S%= #arket
C. +2C #arket
%. *ink sheet #arket

/-. ?ou purchased F?H stock at 4.0 per share. 2he stock is current$y se$$ing at 4:.. ?our
gains cou$d be protected by p$acing a _________.
. $i#it-buy order
". $i#it-se$$ order
C. #arket order
%. stop-$oss order

/>. Consider the fo$$owing $i#it order book of a specia$ist. 2he $ast trade in the stock occurred
at a price of 4/0. 'f a #arket buy order for 100 shares co#es in1 at what price wi$$ it be fi$$ed9

. 435.-.
". 4/0.(.
C. 4/0.3-.
%. 4/0.(. or $ess

3-11
Chapter 03 - Securities Markets
/5. ?ou find that the bid and ask prices for a stock are 410.(. and 410.30 respective$y. 'f you
purchase or se$$ the stock you #ust pay a f$at co##ission of 4(.. 'f you buy 100 shares of the
stock and i##ediate$y se$$ the#1 what is your tota$ i#p$ied and actua$ transaction cost in
do$$ars9
. 4.0
". 4(.
C. 430
%. 4..

.0. ccording to S!C ;u$e /1. regarding she$f registration1 fir#s can gradua$$y se$$ securities
to the pub$ic for __________ fo$$owing initia$ registration.
. 1 year
". ( years
C. 3 years
%. / years

.1. 7hat percentage of <?S! transactions is e)ecuted by specia$ists9
. 10,
". (.,
C. .0,
%. -.,

.(. ssu#e you purchased .00 shares of F?H co##on stock on #argin at 4/0 per share
fro# your broker. 'f the initia$ #argin is :0,1 the a#ount you borrowed fro# the broker is
_________.
. 4(01000
". 41(1000
C. 4>1000
%. 41.1000

3-1(
Chapter 03 - Securities Markets
.3. ?ou so$d short 300 shares of co##on stock at 430 per share. 2he initia$ #argin is .0,.
?ou #ust put up _________.
. 4/1.00
". 4:1000
C. 451000
%. 4101000

./. ?ou short-se$$ (00 shares of 2uckerton 2rading Co.1 now se$$ing for 4.0 per share. 7hat
is your #a)i#u# possib$e $oss9
. 4.0
". 41.0
C. 4101000
%. un$i#ited

... ?ou short-se$$ (00 shares of 2uckerton 2rading Co.1 now se$$ing for 4.0 per share. 7hat
is your #a)i#u# possib$e gain ignoring transactions cost9
. 4.0
". 41.0
C. 4101000
%. un$i#ited

.:. ?ou short-se$$ (00 shares of ;ock Creek &$y &ishing Co.1 now se$$ing for 4.0 per share. 'f
you wish to $i#it your $oss to 4(1.001 you shou$d p$ace a stop-buy order at ____.
. 43-..0
". 4:(..0
C. 4.:.(.
%. 4.5.-.

3-13
Chapter 03 - Securities Markets
.-. ?ou purchased (00 shares of "C co##on stock on #argin at 4.0 per share. ssu#e the
initia$ #argin is .0, and the #aintenance #argin is 30,. ?ou wi$$ get a #argin ca$$ if the
stock drops be$ow ________. Dssu#e the stock pays no dividends and ignore interest on the
#argin $oan.E
. 4(:...
". 43..-1
C. 4(>.5.
%. 430.--

.>. ?ou purchased (.0 shares of co##on stock on #argin for 4(. per share. 2he initia$
#argin is :., and the stock pays no dividend. ?our rate of return wou$d be __________ if
you se$$ the stock at 43( per share. 'gnore interest on #argin.
. 3.,
". 35,
C. /3,
%. (>,

.5. Specia$ists on the stock e)changes #ay do a$$ of the fo$$owing e)cept _________.
. 2hey #ake a #arket in shares of the fir#s for which they specia$iAe
". 2hey keep the $i#it order book
C. Use their privi$eged infor#ation to #ake specu$ative invest#ents on their own account
%. Use their privi$eged infor#ation to #ake invest#ents on beha$f of c$ients of brokerage
fir#s with which they do business

:0. 2ransactions that do not invo$ve the origina$ issue of securities take p$ace in _________.
. pri#ary #arkets
". secondary #arkets
C. over-the-counter #arkets
%. institutiona$ #arkets

3-1/
Chapter 03 - Securities Markets
:1. Many e)change-$isted securities are a$so traded in the over-the-counter #arket. 2rading of
this sort is said to take p$ace in the ___________.
. third #arket
". fourth #arket
C. after-#arket
%. b$ock #arket

:(. __________ often acco#pany short sa$es1 and are used to $i#it potentia$ $osses fro# the
short position.
. 0i#it orders
". ;estricted orders
C. 0i#it-$oss orders
%. Stop-buy orders

:3. 2he appro)i#ate do$$ar va$ue of trades on the <?S! in (00> was
. 4-. bi$$ion
". 4100 bi$$ion
C. 41(. bi$$ion
%. 41.0 bi$$ion

:/. ;egistered traders _________________.
. trade on their own account on$y
". perfor# trades for brokerage fir#s
C. perfor# retai$ trades for the pub$ic
%. trade for the govern#ent

:.. 7hich Congressiona$ action directed the S!C to i#p$e#ent a nationa$ co#petitive
securities #arket9
. Securities ct of 1533
". S!C ct of 153/
C. Securities ct #end#ents of 15-.
%. &inancia$ Services ModerniAation ct of 1555

3-1.
Chapter 03 - Securities Markets
::. Most !uropean #arkets1 inc$uding !urone)t1 use aIan _____________________.
. specia$ist trading syste#
". e$ectronic trading syste#
C. continuous auction #arket
%. direct search #arket

:-. 7hich of the fo$$owing state#ents about Saitoris in Capanese stock #arkets is incorrect9
. Saitoris #aintain the $i#it order book but #ay not trade for their own account
". Saitoris have #ore responsibi$ities than <?S! specia$ists
C. Saitoris act as dea$ers in the Capanese #arkets
%. Saitoris are the princip$e source of $i8uidity in Capanese #arkets

:>. 2he ter# Jpaying for order f$owJ refers to the practice of ________________.
. paying #ore than one broker to e)ecute your order
". dea$ers trading with their custo#ers at an outdated price
C. paying a broker a rebate for directing the trade to a particu$ar stock dea$er rather than
directing the order to the <?S!
%. a$$ocating shares in an '*+ to preferred custo#ers who agree to buy #ore shares in the
after#arket

:5. 'f an investor uses the fu$$ a#ount of #argin avai$ab$e1 the e8uity in a #argin account
used for a stock purchase can be found as ________.
. #arket va$ue of the stock - a#ount owed on the #argin $oan
". #arket va$ue of the stock K a#ount owed on the #argin $oan
C. #arket va$ue of the stock ÷ #argin $oan
%. #argin $oan ) #arket va$ue of the stock

-0. 'f the %ow Cones 'ndustria$ verage fa$$s by 10, by 11 a#1 trading wi$$ ______.
. continue unchanged
". wi$$ be ha$ted for one hour
C. wi$$ be ha$ted for one-ha$f hour
%. wi$$ be ha$ted for the rest of the day

3-1:
Chapter 03 - Securities Markets
-1. 2he C& 'nstitute Standards of *rofessiona$ Conduct re8uire that #e#bers _____.
. p$ace their c$ients interests before their own
". disc$ose conf$icts of interest to c$ients
C. infor# their e#p$oyers that they are ob$igated to co#p$y with the Standards of *rofessiona$
Conduct
%. 2he 'M; Standard re8uire a$$ three

-(. 2rading on insider infor#ation is ____.
'. prohibited by federa$ $aw
''. prohibited by the C& 'nstitute Standards of *rofessiona$ Conduct
'''. $ega$ in Capan
. ' and '' on$y
". '' and ''' on$y
C. ' and ''' on$y
%. '1 '' and '''

-3. 2he ____ re8uires fu$$ disc$osure of re$evant infor#ation re$ating to the issue of new
securities.
. 'nsider 2rading ct of 1531
". Securities ct of 1533
C. Securities !)change ct of 153/
%. 'nvest#ent Co#pany ct of 15/0

-/. 2he S'*C was estab$ished by the ____.
. 'nsider 2rading ct of 1531
". Securities ct of 1533
C. Securities !)change ct of 153/
%. none of these acts estab$ished the S'*C

-.. "rokerage fir#s can change #argin-$oan practices ____.
. without notice
". on$y after -( hours notice
C. on$y on new orders
%. on$y with per#ission fro# the S!C

3-1-
Chapter 03 - Securities Markets
-:. 7hich of the fo$$owing are true concerning short sa$es of e)change $isted stocks9
'. short sa$e is per#itted on$y if the $ast recorded change in the stock3s price was positive
''. *roceeds fro# the short sa$e #ust be kept on deposit with the broker
'''. Short-se$$ers #ust post #argin with their broker to cover potentia$ $osses on the position
'B. 2he short-se$$er earns interest on any cash deposited with the broker that is used to #eet
the #argin re8uire#ent
. ' and '' on$y
". '1 ''' and 'B on$y
C. '' and ''' on$y
%. '1 ''1 ''' and 'B

--. %ay to day regu$ation of the <ew ?ork Stock !)change and enforce#ent of e)change
ru$es and federa$ securities $aws is conducted by the
. S!C.
". C&2C.
C. <?S! ;egu$ation1 'nc.
%. U.S. %epart#ent of the 2reasury.

->. 'n ________ #arkets participants post bid and ask prices at which they are wi$$ing to
trade1 but orders are not auto#atica$$y e)ecuted by co#puter. ____________ e)ecute trades
for peop$e other than the#se$ves and in _______________ #arkets a co#puter #atches
orders with an e)isting $i#it order book and e)ecutes the trades auto#atica$$y.
. [email protected] %[email protected] brokers
". [email protected] "[email protected] e$ectronic
C. direct [email protected] "[email protected] e$ectronic
%. [email protected] %[email protected] direct search

-5. n investor puts up 4.1000 but borrows an e8ua$ a#ount of #oney fro# their broker to
doub$e the a#ount invested to 4101000. 2he broker charges -, on the $oan. 2he stock was
origina$$y purchased at 4(. per share and in one year the investor se$$s the stock for 4(>. 2he
investor3s rate of return was ____.
. 1-,
". 1(,
C. 1/,
%. 15,

3-1>
Chapter 03 - Securities Markets
>0. n investor buys 4>1000 worth of a stock priced at 4/0 per share using .0, initia$
#argin. 2he broker charges :, on the #argin $oan and re8uires a 30, #aintenance #argin.
'n one year the investor gets a #argin ca$$. t the ti#e of the #argin ca$$ the stock3s price
#ust have been ____.
. 4(0.00
". 4(5.--
C. 430.(5
%. 43(./.

>1. 2he <ew ?ork Stock !)change is a good e)a#p$e of _________.
. an auction #arket
". a brokered #arket
C. a dea$er #arket
%. a direct search #arket

>(. 2he pri#ary #arket where new security issues are offered to the pub$ic is a good e)a#p$e
of _________.
. an auction #arket
". a brokered #arket
C. a dea$er #arket
%. a direct search #arket

>3. 2he over-the-counter securities #arket is a good e)a#p$e of _________.
. an auction #arket
". a brokered #arket
C. a dea$er #arket
%. a direct search #arket

3-15
Chapter 03 - Securities Markets
>/. n investor buys 41:1000 worth of a stock priced at 4(0 per share using :0, initia$
#argin. 2he broker charges >, on the #argin $oan and re8uires a 3., #aintenance #argin.
2he stock pays a 40..0 per share dividend in one year and then the stock is so$d at 4(3 per
share. 7hat was the investor3s rate of return9
. 1-..0,
". 15.:-,
C. (3.>3,
%. (..-.,

>.. '"M is $isted on the <?S!. 'f a share of '"M is so$d via the <S%= e)change in which
#arket is it thought to have traded9
. *ri#ary #arket
". Secondary #arket
C. 2hird #arket
%. &ourth #arket

>:. ?ou se$$ short 300 shares of Microsoft which are current$y se$$ing at 430 per share. ?ou
post the .0, #argin re8uired on the short sa$e. 'f you earn no interest on the funds in your
#argin account what wi$$ be your rate of return after one year if Microsoft is se$$ing at 4(-9
D'gnore any dividendsE
. 10.00,
". (0.00,
C. :.:-,
%. 1.,

>-. 2he co##ission structure on a stock purchase is 4(0 p$us 40.0( per share. 'f you purchase
/ round $ots of a stock se$$ing for 4.:1 what is your co##ission9
. 4(0
". 4((
C. 4(:
%. 4(>

3-(0
Chapter 03 - Securities Markets
>>. 2he co##ission structure on a stock purchase is 4.0 p$us 40.03 per share. 'f you purchase
:00 shares of a stock se$$ing for 4:.1 what is your co##ission9
. 43.
". 4/.
C. 4.3
%. 4:>

>5. ?ou se$$ short (00 shares of %oggie 2reats 'nc. which are current$y se$$ing at 4(. per
share. ?ou post the .0, #argin re8uired on the short sa$e. 'f your broker re8uires a 30,
#aintenance #argin1 at what stock price wi$$ you get a #argin ca$$9 D?ou earn no interest on
the funds in your #argin account and the fir# does not pay any dividendsE
. 4(>.>.
". 43..-1
C. 431..0
%. 43(.(.

50. 2he #argin re8uire#ent on a stock purchase is (.,. ?ou fu$$y use the #argin a$$owed to
purchase 100 shares of MS&2 at 4(.. 'f the price drops to 4((1 what is your percentage $oss9
. 5,
". 1.,
C. />,
%. .-,

Chapter 03 Securities Markets nswer Ley


Multiple Choice Questions

3-(1
Chapter 03 - Securities Markets
1. Underwriting is one of the services provided by _____.
. the S!C
B. invest#ent bankers
C. pub$ic$y traded co#panies
%. &%'C

Difficulty: Easy

(. Under fir# co##it#ent underwriting the ______ assu#es the fu$$ risk that the shares
cannot be so$d to the pub$ic at the stipu$ated offering price.
. red herring
". issuing co#pany
C. initia$ stockho$der
D. underwriter

Difficulty: Medium

3. !)p$icit costs of an '*+ tend to be around ______ of the funds raised.
. 1,
B. -,
C. 1.,
%. (.,

Difficulty: Medium

3-((
Chapter 03 - Securities Markets
/. "arnegat 0ight so$d (001000 shares in an initia$ pub$ic offering. 2he underwriter3s e)p$icit
fees were 4501000. 2he offering price for the shares was 43.1 but i##ediate$y upon issue1 the
share price 6u#ped to 4/3. 7hat is the best esti#ate of the tota$ cost to "arnegat 0ight of the
e8uity issue9
. 4501000
". 411(501000
C. 4(13501000
D. 411:501000
2ota$ Cost M 501000 K D/3 - 3.E(001000 M 411:501000

Difficulty: Hard

.. red herring beco#es a prospectus when ____.
A. the pre$i#inary registration state#ent is approved by the S!C
". the '*+ is co#p$ete
C. the offering is seasoned
%. the $ockup period e)pires

Difficulty: Medium

:. *rivate p$ace#ents can be advantageous rather than pub$ic issue because ______.
'. private p$ace#ents are cheaper to #arket than pub$ic issues
''. private p$ace#ents #ay sti$$ be so$d to the genera$ pub$ic under S!C ;u$e 1//
'''. private$y p$aced securities trade on secondary #arkets
A. ' on$y
". ' and ''' on$y
C. '' and ''' on$y
%. '1 '' and '''

Difficulty: Medium

3-(3
Chapter 03 - Securities Markets
-. $eve$ _____ subscriber to the <S%= syste# #ay enter bid and ask prices.
. 1
". (
C. 3
%. /

Difficulty: Easy

>. 7hich one of the fo$$owing state#ents about '*+s is not true9
. '*+s genera$$y underperfor# in the short run.
". '*+s often provide very good initia$ returns to investors.
C. '*+s genera$$y provide superior $ong-ter# perfor#ance as co#pared to other stocks.
%. Shares in '*+s are often pri#ari$y a$$ocated to institutiona$ investors.

Difficulty: Medium

5. 2he issue process where investors sub#it bids for a new issue and the shares in an '*+ are
a$$ocated to the highest bidders unti$ the entire issue is so$d is ca$$ed a
. best efforts offer
B. %utch auction
C. secondary offering
%. fir# co##it#ent offer

Difficulty: Medium

10. 2he <?S! recent$y ac8uired the !C< _______ and <S%= recent$y ac8uired the !C<
________.
A. [email protected] 'nstinet
". '[email protected] rchipe$ago
C. '[email protected] 'nstinet
%. [email protected] !urone)t

Difficulty: Medium

3-(/
Chapter 03 - Securities Markets
11. ;ank the fo$$owing types of #arkets fro# $east integrated and organiAed to #ost
integrated and organiAed.
'. "rokered #arkets
''. Continuous auction #arkets
'''. %ea$er #arkets
'B. %irect search #arkets
. 'B1 ''1 '1 '''
". '1 '''1 'B1 ''
C. ''1 '''1 'B1 '
D. 'B1 '1 '''1 ''

Difficulty: Hard

1(. ______ drop in the %ow Cones 'ndustria$ verage wou$d stop trading for the day.
. 10,
". (0,
C. 30,
%. /0,

Difficulty: Medium

13. 7hich one of the fo$$owing is not an e)a#p$e of a brokered #arket9
. ;esidentia$ rea$ estate #arket
". Market for $arge b$ock security transactions
C. *ri#ary #arket for securities
D. <S%=

Difficulty: Medium

3-(.
Chapter 03 - Securities Markets
1/. Circuit breakers wi$$ be i#posed if the %ow Cones 'ndustria$ verage drops by a
#ini#u# of ______ by (.30 p#.
A. 10,
". (0,
C. 30,
%. /0,

Difficulty: Medium

1.. *urchases of new issues of stock take p$ace _________.
. at the desk of the &ed
B. in the pri#ary #arket
C. in the secondary #arket
%. in the #oney #arkets

Difficulty: Easy

1:. 'nitia$ #argin re8uire#ents on stocks are set by _________.
. the &edera$ %eposit 'nsurance Corporation
B. the &edera$ ;eserve
C. the <ew ?ork Stock !)change
%. the Securities and !)change Co##ission

Difficulty: Easy

1-. 7hich one of the fo$$owing types of #arkets re8uires the greatest $eve$ of trading activity
to be cost effective9
. "roker #arket
". %ea$er #arket
C. Continuous auction #arket
%. %irect search #arket

Difficulty: Easy

3-(:
Chapter 03 - Securities Markets
1>. 7hich one of the fo$$owing is a fa$se state#ent regarding <?S! specia$ists9
. +n a stock e)change a$$ buy or se$$ orders are e)ecuted at a specia$ist3s post on the
e)change
B. Specia$ists can not trade for their own accounts
C. Specia$ists earn inco#e fro# co##issions and spreads in stock prices
%. Specia$ists stand ready to trade at 8uoted bid and ask prices

Difficulty: Easy

15. ;estrictions on trading invo$ving insider infor#ation app$y to _________.
'. corporate officers and directors
''. #a6or stockho$ders
'''. re$atives of corporate directors and officers
. ' on$y
". ' and '' on$y
C. '' and ''' on$y
D. '1 ''1 and '''.

Difficulty: Hard

(0. n order to buy or se$$ a security at the current price is a ______________.
. $i#it order
B. #arket order
C. stop $oss order
%. stop buy order

Difficulty: Easy

(1. 7hen U.S. stock prices were converted fro# fractions to deci#a$s in (001 the #ini#u#
bid-ask spread charged by dea$ers ________.
. increased
B. decreased
C. re#ained the sa#e
%. fe$$ at first1 but then increased

Difficulty: Medium

3-(-
Chapter 03 - Securities Markets
((. 2he #arket co$$apse of 15>- pro#pted ________________________.
. "$ue Sky $aws
B. circuit breakers to ha$t trading during #arket crises
C. the Securities 'nvestor *rotection ct
%. the <ationa$ Securities Market ct

Difficulty: Easy

(3. 'f an investor p$aces a _________ order the stock wi$$ be so$d if its price fa$$s to the
stipu$ated $eve$. 'f an investor p$aces a __________ order the stock wi$$ be bought if its price
rises above the stipu$ated $eve$.
. [email protected] stop-$oss
". #[email protected] $i#it
C. [email protected] stop-buy
%. $i#[email protected] #arket

Difficulty: Easy

(/. +n a given day a stock dea$er #aintains a bid price of 41000..0 for a bond and an ask
price of 41003.(.. 2he dea$er #ade 10 trades which tota$ed .00 bonds traded that day. 7hat
was the dea$er3s gross trading profit for this security9
A. 4113-.
". 4.00
C. 4(-.
%. 411/.0
D1003.1. - 1000..0E.00 M 4113-.

Difficulty: Easy

3-(>
Chapter 03 - Securities Markets
(.. dvantages of !C<s over traditiona$ #arkets inc$ude a$$ but which one of the fo$$owing9
. 0ower transactions costs
". nony#ity of the participants
C. S#a$$ a#ount of ti#e needed to e)ecute and order
D. bi$ity to hand$e very $arge orders

Difficulty: Medium

(:. 2he __________ was estab$ished to protect investors fro# $osses if their brokerage fir#s
fai$.
. C&2C
". S!C
C. S'*C
%. 'M;

Difficulty: Easy

(-. 7hen #atching orders fro# the pub$ic a specia$ist is re8uired to use the _______.
. $owest outstanding bid price and highest outstanding ask price
". highest outstanding bid price and highest outstanding ask price
C. $owest outstanding bid price and $owest outstanding ask price
D. highest outstanding bid price and $owest outstanding ask price

Difficulty: Hard

(>. 2he process of po$$ing potentia$ investors regarding their interest in a forthco#ing initia$
pub$ic offering D'*+E is ca$$ed ________.
. interest bui$ding
B. book bui$ding
C. #arket ana$ysis
%. custo#er identification

Difficulty: Easy

3-(5
Chapter 03 - Securities Markets
(5. 2he bu$k of #ost initia$ pub$ic offerings D'*+sE of e8uity securities go to ___________.
A. institutiona$ investors
". individua$ investors
C. the fir#3s current shareho$ders
%. day traders

Difficulty: Easy

30. 'nitia$ pub$ic offerings D'*+sE are usua$$y ___________ re$ative to the $eve$s at which
their prices stabi$iAe after they begin trading in the secondary #arket.
. over priced
". correct$y priced
C. under priced
%. #ispriced but without any particu$ar bias

Difficulty: Easy

31. ccording to 0oughran and ;itter1 initia$ pub$ic offerings tend to e)hibit __________
perfor#ance initia$$y1 and __________ perfor#ance over the $ong ter#.
. [email protected] good
". [email protected] bad
C. [email protected] good
D. [email protected] bad

Difficulty: Medium

3-30
Chapter 03 - Securities Markets
3(. Specia$ists try to #aintain a narrow bid-ask spread because _______.
'. 'f the spread is too $arge they wi$$ not participate in as #any trades1 $osing co##ission
inco#e
''. 2he e)change re8uires specia$ists to #aintain price continuity
'''. Specia$ists are non-profit entities designed to faci$itate #arket transactions rather than
#ake a profit
. ' on$y
B. ' and '' on$y
C. '' and ''' on$y
%. '1 '' and '''

Difficulty: Easy

33. 'n a __________ underwriting arrange#ent1 the underwriter assu#es the fu$$ risk that
shares #ay not be so$d to the pub$ic at the stipu$ated offering price.
. best efforts
B. fir# co##it#ent
C. private p$ace#ent
%. none of the above

Difficulty: Easy

3/. 2he ______________ is the #ost i#portant dea$er #arket in the U.S. and the
______________ is the #ost i#portant auction #arket.
. <[email protected] <S%=
B. <S%[email protected] <?S!
C. [email protected] +2C
%. [email protected] <?S!

Difficulty: Easy

3-31
Chapter 03 - Securities Markets
3.. 2he inside 8uotes on a $i#it order book wou$d be co#prised of the ______.
A. highest bid price and the $owest ask price
". $owest bid price and the $owest ask price
C. $owest bid price and the highest ask price
%. highest bid price and the highest ask price

Difficulty: Medium

3:. 2he __________ syste# enab$es e)change #e#bers to send orders direct$y to a specia$ist
over co#puter $ines.
. &F
". %irect *$us
C. <S%=
D. SU*!;%+2

Difficulty: Easy

3-. 2he fu$$y auto#ated trade-e)ecution syste# insta$$ed on the <?S! is ca$$ed
. &F
B. %irect *$us
C. <S%=
%. SU*!;%+2

Difficulty: Easy

3>. <asda8 now offers three $isting options. 2he $argest1 #ost active$y traded fir#s are on the
. <asda8 G$oba$ Market
B. <asda8 G$oba$ Se$ect Market
C. <asda8 Capita$ Market
%. <asda8 *ink Sheet Stocks

Difficulty: Medium

3-3(
Chapter 03 - Securities Markets
35. ppro)i#ate$y __________ of trades invo$ving shares issued by fir#s $isted on the <ew
?ork Stock !)change actua$$y take p$ace on the <ew ?ork Stock !)change.
. .0,
B. -.,
C. >0,
%. 5.,

Difficulty: Medium

/0. 2he _________ price is the price at which a dea$er is wi$$ing to purchase a security.
A. bid
". ask
C. c$earing
%. sett$e#ent

Difficulty: Easy

/1. 2he _________ price is the price at which a dea$er is wi$$ing to se$$ a security.
. bid
B. ask
C. c$earing
%. sett$e#ent

Difficulty: Easy

/(. 2he difference between the price at which a dea$er is wi$$ing to buy1 and the price at
which a dea$er is wi$$ing to se$$1 is ca$$ed the _________.
. #arket spread
B. bid-ask spread
C. bid-ask gap
%. #arket variation

Difficulty: Easy

3-33
Chapter 03 - Securities Markets
/3. 2he bid-ask spread e)ists because of _______________.
. #arket inefficiencies
". discontinuities in the #arkets
C. the need for dea$ers to cover e)penses and #ake a profit
%. $ack of trading in thin #arkets

Difficulty: Easy

//. "oth the <?S! and <asda8 have $ost #arket share to !C<s in recent years. *art of
<asda83s response to the growth of !C<s has been to _______.
'. *urchase 'nstinet1 a #a6or !C<
''. !nab$e auto#atic trade e)ecution through its new Market Center
'''. Switch fro# stock ownership to #utua$ ownership
. ' on$y
". '' and ''' on$y
C. ' and '' on$y
%. '1 '' and '''

Difficulty: Medium

/.. 2he cost of buying and se$$ing a stock inc$ude _________.
'. broker3s co##issions
''. dea$er3s bid-asked spread
'''. price concessions investors #ay be forced to #ake
. ' and '' on$y
". '' and ''' on$y
C. ' and ''' on$y
D. '1 '' and '''

Difficulty: Medium

3-3/
Chapter 03 - Securities Markets
/:. 2rades on the __________ are the #ost $ike$y to trade inside the inside 8uotes than in
other #arkets.
A. <?S!
". <S%= #arket
C. +2C #arket
%. *ink sheet #arket

Difficulty: Medium

/-. ?ou purchased F?H stock at 4.0 per share. 2he stock is current$y se$$ing at 4:.. ?our
gains cou$d be protected by p$acing a _________.
. $i#it-buy order
". $i#it-se$$ order
C. #arket order
D. stop-$oss order

Difficulty: Medium

/>. Consider the fo$$owing $i#it order book of a specia$ist. 2he $ast trade in the stock occurred
at a price of 4/0. 'f a #arket buy order for 100 shares co#es in1 at what price wi$$ it be fi$$ed9

. 435.-.
". 4/0.(.
C. 4/0.3-.
D. 4/0.(. or $ess
'n this case the specia$ist wou$d have the option of #atching the buy order with the $owest
$i#it se$$ order D4/0.(.E or set an ask price $ower than 4/0.(. D4/0 for e)a#p$eE and trade the
order fro# his own stock.

Difficulty: Medium

3-3.
Chapter 03 - Securities Markets
/5. ?ou find that the bid and ask prices for a stock are 410.(. and 410.30 respective$y. 'f you
purchase or se$$ the stock you #ust pay a f$at co##ission of 4(.. 'f you buy 100 shares of the
stock and i##ediate$y se$$ the#1 what is your tota$ i#p$ied and actua$ transaction cost in
do$$ars9
. 4.0
". 4(.
C. 430
D. 4..
100D10.30 - 10.(.E K (D.(.E M 4..

Difficulty: Medium

.0. ccording to S!C ;u$e /1. regarding she$f registration1 fir#s can gradua$$y se$$ securities
to the pub$ic for __________ fo$$owing initia$ registration.
. 1 year
B. ( years
C. 3 years
%. / years

Difficulty: Medium

.1. 7hat percentage of <?S! transactions is e)ecuted by specia$ists9
. 10,
". (.,
C. .0,
D. -.,

Difficulty: Medium

3-3:
Chapter 03 - Securities Markets
.(. ssu#e you purchased .00 shares of F?H co##on stock on #argin at 4/0 per share
fro# your broker. 'f the initia$ #argin is :0,1 the a#ount you borrowed fro# the broker is
_________.
. 4(01000
". 41(1000
C. 4>1000
%. 41.1000
.00D4/0ED0./0E M 4>1000

Difficulty: Medium

.3. ?ou so$d short 300 shares of co##on stock at 430 per share. 2he initia$ #argin is .0,.
?ou #ust put up _________.
A. 4/1.00
". 4:1000
C. 451000
%. 4101000
'nvest#ent M 300D30ED..0E M /.00

Difficulty: Medium

./. ?ou short-se$$ (00 shares of 2uckerton 2rading Co.1 now se$$ing for 4.0 per share. 7hat
is your #a)i#u# possib$e $oss9
. 4.0
". 41.0
C. 4101000
D. un$i#ited
2here is no upper $i#it to the price of a share of [email protected] therefore no upper $i#it the price you
wi$$ have to pay to rep$ace the (00 shares of 2uckerton.

Difficulty: Easy

3-3-
Chapter 03 - Securities Markets
... ?ou short-se$$ (00 shares of 2uckerton 2rading Co.1 now se$$ing for 4.0 per share. 7hat
is your #a)i#u# possib$e gain ignoring transactions cost9
. 4.0
". 41.0
C. 4101000
%. un$i#ited
2uckerton cou$d go bankrupt with a share price of 40. ?ou cou$d keep the entire proceeds
fro# the short sa$e.

Difficulty: Medium

.:. ?ou short-se$$ (00 shares of ;ock Creek &$y &ishing Co.1 now se$$ing for 4.0 per share. 'f
you wish to $i#it your $oss to 4(1.001 you shou$d p$ace a stop-buy order at ____.
. 43-..0
B. 4:(..0
C. 4.:.(.
%. 4.5.-.
.0 K D(.00I(00E M 4:(..0

Difficulty: Medium

3-3>
Chapter 03 - Securities Markets
.-. ?ou purchased (00 shares of "C co##on stock on #argin at 4.0 per share. ssu#e the
initia$ #argin is .0, and the #aintenance #argin is 30,. ?ou wi$$ get a #argin ca$$ if the
stock drops be$ow ________. Dssu#e the stock pays no dividends and ignore interest on the
#argin $oan.E
. 4(:...
B. 43..-1
C. 4(>.5.
%. 430.--

Difficulty: Hard

.>. ?ou purchased (.0 shares of co##on stock on #argin for 4(. per share. 2he initia$
#argin is :., and the stock pays no dividend. ?our rate of return wou$d be __________ if
you se$$ the stock at 43( per share. 'gnore interest on #argin.
. 3.,
". 35,
C. /3,
%. (>,

Difficulty: Hard

.5. Specia$ists on the stock e)changes #ay do a$$ of the fo$$owing e)cept _________.
. 2hey #ake a #arket in shares of the fir#s for which they specia$iAe
". 2hey keep the $i#it order book
C. Use their privi$eged infor#ation to #ake specu$ative invest#ents on their own account
D. Use their privi$eged infor#ation to #ake invest#ents on beha$f of c$ients of brokerage
fir#s with which they do business

Difficulty: Medium

3-35
Chapter 03 - Securities Markets
:0. 2ransactions that do not invo$ve the origina$ issue of securities take p$ace in _________.
. pri#ary #arkets
B. secondary #arkets
C. over-the-counter #arkets
%. institutiona$ #arkets

Difficulty: Easy

:1. Many e)change-$isted securities are a$so traded in the over-the-counter #arket. 2rading of
this sort is said to take p$ace in the ___________.
A. third #arket
". fourth #arket
C. after-#arket
%. b$ock #arket

Difficulty: Easy

:(. __________ often acco#pany short sa$es1 and are used to $i#it potentia$ $osses fro# the
short position.
. 0i#it orders
". ;estricted orders
C. 0i#it-$oss orders
D. Stop-buy orders

Difficulty: Medium

:3. 2he appro)i#ate do$$ar va$ue of trades on the <?S! in (00> was
. 4-. bi$$ion
". 4100 bi$$ion
C. 41(. bi$$ion
D. 41.0 bi$$ion

Difficulty: Medium

3-/0
Chapter 03 - Securities Markets
:/. ;egistered traders _________________.
A. trade on their own account on$y
". perfor# trades for brokerage fir#s
C. perfor# retai$ trades for the pub$ic
%. trade for the govern#ent

Difficulty: Easy

:.. 7hich Congressiona$ action directed the S!C to i#p$e#ent a nationa$ co#petitive
securities #arket9
. Securities ct of 1533
". S!C ct of 153/
C. Securities ct #end#ents of 15-.
%. &inancia$ Services ModerniAation ct of 1555

Difficulty: Medium

::. Most !uropean #arkets1 inc$uding !urone)t1 use aIan _____________________.
. specia$ist trading syste#
B. e$ectronic trading syste#
C. continuous auction #arket
%. direct search #arket

Difficulty: Medium

:-. 7hich of the fo$$owing state#ents about Saitoris in Capanese stock #arkets is incorrect9
. Saitoris #aintain the $i#it order book but #ay not trade for their own account
B. Saitoris have #ore responsibi$ities than <?S! specia$ists
C. Saitoris act as dea$ers in the Capanese #arkets
%. Saitoris are the princip$e source of $i8uidity in Capanese #arkets

Difficulty: Medium

3-/1
Chapter 03 - Securities Markets
:>. 2he ter# Jpaying for order f$owJ refers to the practice of ________________.
. paying #ore than one broker to e)ecute your order
". dea$ers trading with their custo#ers at an outdated price
C. paying a broker a rebate for directing the trade to a particu$ar stock dea$er rather than
directing the order to the <?S!
%. a$$ocating shares in an '*+ to preferred custo#ers who agree to buy #ore shares in the
after#arket

Difficulty: Medium

:5. 'f an investor uses the fu$$ a#ount of #argin avai$ab$e1 the e8uity in a #argin account
used for a stock purchase can be found as ________.
A. #arket va$ue of the stock - a#ount owed on the #argin $oan
". #arket va$ue of the stock K a#ount owed on the #argin $oan
C. #arket va$ue of the stock ÷ #argin $oan
%. #argin $oan ) #arket va$ue of the stock

Difficulty: Medium

-0. 'f the %ow Cones 'ndustria$ verage fa$$s by 10, by 11 a#1 trading wi$$ ______.
. continue unchanged
B. wi$$ be ha$ted for one hour
C. wi$$ be ha$ted for one-ha$f hour
%. wi$$ be ha$ted for the rest of the day

Difficulty: Medium

-1. 2he C& 'nstitute Standards of *rofessiona$ Conduct re8uire that #e#bers _____.
. p$ace their c$ients interests before their own
". disc$ose conf$icts of interest to c$ients
C. infor# their e#p$oyers that they are ob$igated to co#p$y with the Standards of *rofessiona$
Conduct
D. 2he 'M; Standard re8uire a$$ three

Difficulty: Medium

3-/(
Chapter 03 - Securities Markets
-(. 2rading on insider infor#ation is ____.
'. prohibited by federa$ $aw
''. prohibited by the C& 'nstitute Standards of *rofessiona$ Conduct
'''. $ega$ in Capan
. ' and '' on$y
". '' and ''' on$y
C. ' and ''' on$y
D. '1 '' and '''

Difficulty: Medium

-3. 2he ____ re8uires fu$$ disc$osure of re$evant infor#ation re$ating to the issue of new
securities.
. 'nsider 2rading ct of 1531
B. Securities ct of 1533
C. Securities !)change ct of 153/
%. 'nvest#ent Co#pany ct of 15/0

Difficulty: Easy

-/. 2he S'*C was estab$ished by the ____.
. 'nsider 2rading ct of 1531
". Securities ct of 1533
C. Securities !)change ct of 153/
D. none of these acts estab$ished the S'*C

Difficulty: Easy

-.. "rokerage fir#s can change #argin-$oan practices ____.
A. without notice
". on$y after -( hours notice
C. on$y on new orders
%. on$y with per#ission fro# the S!C

Difficulty: Easy

3-/3
Chapter 03 - Securities Markets
-:. 7hich of the fo$$owing are true concerning short sa$es of e)change $isted stocks9
'. short sa$e is per#itted on$y if the $ast recorded change in the stock3s price was positive
''. *roceeds fro# the short sa$e #ust be kept on deposit with the broker
'''. Short-se$$ers #ust post #argin with their broker to cover potentia$ $osses on the position
'B. 2he short-se$$er earns interest on any cash deposited with the broker that is used to #eet
the #argin re8uire#ent
. ' and '' on$y
". '1 ''' and 'B on$y
C. '' and ''' on$y
%. '1 ''1 ''' and 'B

Difficulty: Hard

--. %ay to day regu$ation of the <ew ?ork Stock !)change and enforce#ent of e)change
ru$es and federa$ securities $aws is conducted by the
. S!C.
". C&2C.
C. <?S! ;egu$ation1 'nc.
%. U.S. %epart#ent of the 2reasury.

Difficulty: Hard

->. 'n ________ #arkets participants post bid and ask prices at which they are wi$$ing to
trade1 but orders are not auto#atica$$y e)ecuted by co#puter. ____________ e)ecute trades
for peop$e other than the#se$ves and in _______________ #arkets a co#puter #atches
orders with an e)isting $i#it order book and e)ecutes the trades auto#atica$$y.
. [email protected] %[email protected] brokers
B. [email protected] "[email protected] e$ectronic
C. direct [email protected] "[email protected] e$ectronic
%. [email protected] %[email protected] direct search

Difficulty: Hard

3-//
Chapter 03 - Securities Markets
-5. n investor puts up 4.1000 but borrows an e8ua$ a#ount of #oney fro# their broker to
doub$e the a#ount invested to 4101000. 2he broker charges -, on the $oan. 2he stock was
origina$$y purchased at 4(. per share and in one year the investor se$$s the stock for 4(>. 2he
investor3s rate of return was ____.
A. 1-,
". 1(,
C. 1/,
%. 15,

Difficulty: Hard

>0. n investor buys 4>1000 worth of a stock priced at 4/0 per share using .0, initia$
#argin. 2he broker charges :, on the #argin $oan and re8uires a 30, #aintenance #argin.
'n one year the investor gets a #argin ca$$. t the ti#e of the #argin ca$$ the stock3s price
#ust have been ____.
. 4(0.00
B. 4(5.--
C. 430.(5
%. 43(./.

Difficulty: Hard

>1. 2he <ew ?ork Stock !)change is a good e)a#p$e of _________.
A. an auction #arket
". a brokered #arket
C. a dea$er #arket
%. a direct search #arket

Difficulty: Easy

3-/.
Chapter 03 - Securities Markets
>(. 2he pri#ary #arket where new security issues are offered to the pub$ic is a good e)a#p$e
of _________.
. an auction #arket
B. a brokered #arket
C. a dea$er #arket
%. a direct search #arket

Difficulty: Easy

>3. 2he over-the-counter securities #arket is a good e)a#p$e of _________.
. an auction #arket
". a brokered #arket
C. a dea$er #arket
%. a direct search #arket

Difficulty: Easy

>/. n investor buys 41:1000 worth of a stock priced at 4(0 per share using :0, initia$
#argin. 2he broker charges >, on the #argin $oan and re8uires a 3., #aintenance #argin.
2he stock pays a 40..0 per share dividend in one year and then the stock is so$d at 4(3 per
share. 7hat was the investor3s rate of return9
. 1-..0,
". 15.:-,
C. (3.>3,
%. (..-.,

Difficulty: Hard

3-/:
Chapter 03 - Securities Markets
>.. '"M is $isted on the <?S!. 'f a share of '"M is so$d via the <S%= e)change in which
#arket is it thought to have traded9
. *ri#ary #arket
". Secondary #arket
C. 2hird #arket
%. &ourth #arket

Difficulty: Easy

>:. ?ou se$$ short 300 shares of Microsoft which are current$y se$$ing at 430 per share. ?ou
post the .0, #argin re8uired on the short sa$e. 'f you earn no interest on the funds in your
#argin account what wi$$ be your rate of return after one year if Microsoft is se$$ing at 4(-9
D'gnore any dividendsE
. 10.00,
B. (0.00,
C. :.:-,
%. 1.,

Difficulty: Hard

>-. 2he co##ission structure on a stock purchase is 4(0 p$us 40.0( per share. 'f you purchase
/ round $ots of a stock se$$ing for 4.:1 what is your co##ission9
. 4(0
". 4((
C. 4(:
D. 4(>
Co##ission M (0 K D/00 ) .0(E M 4(>.00

Difficulty: Medium

3-/-
Chapter 03 - Securities Markets
>>. 2he co##ission structure on a stock purchase is 4.0 p$us 40.03 per share. 'f you purchase
:00 shares of a stock se$$ing for 4:.1 what is your co##ission9
. 43.
". 4/.
C. 4.3
D. 4:>
Co##ission M .0 K D:00 ) .03E M 4:>.00

Difficulty: Medium

>5. ?ou se$$ short (00 shares of %oggie 2reats 'nc. which are current$y se$$ing at 4(. per
share. ?ou post the .0, #argin re8uired on the short sa$e. 'f your broker re8uires a 30,
#aintenance #argin1 at what stock price wi$$ you get a #argin ca$$9 D?ou earn no interest on
the funds in your #argin account and the fir# does not pay any dividendsE
A. 4(>.>.
". 43..-1
C. 431..0
%. 43(.(.

Difficulty: Hard

50. 2he #argin re8uire#ent on a stock purchase is (.,. ?ou fu$$y use the #argin a$$owed to
purchase 100 shares of MS&2 at 4(.. 'f the price drops to 4((1 what is your percentage $oss9
. 5,
". 1.,
C. />,
%. .-,

Difficulty: Medium

3-/>

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