Underwriting is one of the services provided by _____.
investment bankers
Under firm-commitment underwriting, the ______ assumes the full risk that the shares cannot be sold to the public at the stipulated offering price.
underwriter
Explicit costs of an IPO tend to be around ______ of the funds raised.
7%
A red herring becomes a prospectus when ____.
the preliminary registration statement is approved by the SEC
Private placements can be advantageous, compared to public issue, because:
I. Private placements are cheaper to market than public issues.
II. Private placements may still be sold to the general public under SEC Rule 144A.
III. Privately placed securities
I only
A level _____ subscriber to the NASDAQ system may enter bid and ask prices.
3
Which one of the following statements about IPOs is not true?
IPOs generally provide superior long-term performance as compared to other stocks.
The NYSE acquired the ECN _______, and NASDAQ recently acquired the ECN ________.
Archipelago; Instinet
Rank the following types of markets from least integrated and organized to most integrated and organized:
I. Brokered markets
II. Continuous auction markets
III. Dealer markets
IV. Direct search markets
IV, I, III, II
As a result of flash crashes, the SEC is trying circuit breakers that will halt trading for 5 minutes if large stocks' prices change by more than _____ in a 5-minute period.
10%
Which one of the following is not an example of a brokered market?
NASDAQ
More than ______ of all trading is believed to be initiated by computer algorithms.
50%
Purchases of new issues of stock take place _________.
in the primary market
Initial margin requirements on stocks are set by _________.
the Federal Reserve
Which one of the following types of markets requires the greatest level of trading activity to be cost-effective?
Continuous auction market
Which one of the following is a false statement regarding NYSE specialists?
Specialists cannot trade for their own accounts.
Restrictions on trading involving insider information apply to:
I. Corporate officers and directors
II. Major stockholders
III. Relatives of corporate directors and officers
I, II, and III
An order to buy or sell a security at the current price is a ______________.
market order
The term inside quotes refers to _____.
the difference between the highest bid price and the lowest ask price in the limit order book.
The term latency refers to _____.
the amount of time it takes to accept, process, and deliver a trading order.
If an investor places a _________ order, the stock will be sold if its price falls to the stipulated level. If an investor places a __________ order, the stock will be bought if its price rises above the stipulated level.
stop-loss; stop-buy
Advantages of ECNs over traditional markets include all but which one of the following?
Ability to handle very large orders
The __________ was established to protect investors from losses if their brokerage firms fail.
SIPC
When matching orders from the public, a specialist is required to use the _______.
highest outstanding bid price and lowest outstanding ask price
The process of polling potential investors regarding their interest in a forthcoming initial public offering (IPO) is called ________.
book building
The bulk of most initial public offerings (IPOs) of equity securities goes to ___________.
institutional investors
Initial public offerings (IPOs) are usually ___________ relative to the levels at which their prices stabilize after they begin trading in the secondary market.
underpriced
According to multiple studies by Ritter, initial public offerings tend to exhibit __________ performance initially and __________ performance over the long term.
good; bad
Specialists try to maintain a narrow bid-ask spread because:
I. If the spread is too large, they will not participate in as many trades, losing commission income.
II. The exchange requires specialists to maintain price continuity.
III. Specialists are non
I and II only
In a __________ underwriting arrangement, the underwriter assumes the full risk that shares may not be sold to the public at the stipulated offering price.
firm-commitment
The ______________ is the most important dealer market in the United States, and the ______________ is the most important auction market.
NASDAQ; NYSE
The inside quotes on a limit order book can be found ______.
at the top of the list
The __________ system enables exchange members to send orders directly to a specialist over computer lines.
SUPERDOT
The fully automated trade-execution system installed on the NYSE is called _____.
Direct +
The NYSE Hybrid Market allows _____.
brokers to send orders either to an electronic system or to a specialist
Approximately __________ of trades involving shares issued by firms listed on the New York Stock Exchange actually take place on the New York Stock Exchange.
25%
The _________ price is the price at which a dealer is willing to purchase a security.
bid
The _________ price is the price at which a dealer is willing to sell a security.
ask
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 the _________.
bid-ask spread
The bid-ask spread exists because of _______________.
the need for dealers to cover expenses and make a profit
The NYSE has lost market share to ECNs in recent years. Part of the NYSE's response to the growth of ECNs has been to:
I. Purchase Archipelago, a major ECN, and rename it NYSE Arca
II. Enable automatic trade execution through its new Market Center
III. Im
I only
The cost of buying and selling a stock includes:
I. Broker's commissions
II. Dealer's bid-asked spread
III. Price concessions that investors may be forced to make
I, II, and III
Which of the following is (are) true about dark pools?
I. They allow anonymity in trading.
II. They often involve large blocks of stocks.
III. Trades made through them might not be reported.
I, II, and III
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 order
According to SEC Rule 415 regarding shelf registration, firms can gradually sell securities to the public for __________ following initial registration.
2 years
What happened to the effective spread on trades when the SEC allowed the minimum tick size to move from one-eighth of a dollar to one-sixteenth of a dollar in 1997 and from one-sixteenth of a dollar to one cent in 2001?
The tick size decreased in both cases.
You sold short 300 shares of common stock at $30 per share. The initial margin is 50%. You must put up _________.
$4,500
Investment = 300(30)(.50) = 4,500
You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible loss?
Unlimited. There is no upper limit to the price of a share of stock and, therefore, no upper limit to the price you will have to pay to replace the 200 shares of Tuckerton.
You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible gain, ignoring transactions cost?
$10,000
You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you want to limit your loss to $2,500, you should place a stop-buy order at ____.
$62.50
Amount received from short sale = 200 � $50 = $10,000
Loss = $2,500 = 200P - 10,000
$12,500 = 200P, so P = $62.50
You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends, and ignore inte
$35.71
Equity = 200P - 5,000
Margin = (200P - 5,000)/200P = .30
200P - 5,000 = 60P
140P = 5,000
P = 35.71429
You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65%, and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin.
43%
Transactions that do not involve the original issue of securities take place in _________.
secondary markets
What was the result of high-frequency traders' leaving the market during the flash crash of 2010?
Market liquidity decreased.
__________ often accompany short sales and are used to limit potential losses from the short position.
Stop-buy orders
The market share held by the NYSE Arca system in February 2011 was approximately ____.
10%
Regulation NMS:
I. Supports the goal of integrating financial markets
II. Requires the use of specialists to execute trades
III. Requires that exchanges honor quotes of other exchanges when they can be executed automatically
I and III only
The commission structure on a stock purchase is $50 plus $.03 per share. If you purchase 600 shares of a stock selling for $65, what is your commission?
$68
Commission = 50 + (600 � .03) = $68
All major stock markets today are effectively _______________.
electronic trading systems
In 2008, the NASDAQ stock market merged with _____.
OMX, which operates seven Nordic and Baltic stock exchanges
You hold 5,000 shares of the 1 million outstanding shares of Wealthy Wranglers common stock. You've just learned that the company plans to issue more shares, so that 2 million shares will be outstanding. This is called _____.
a seasoned equity offering
If an investor uses the full amount of margin available, the equity in a margin account used for a stock purchase can be found as ________.
market value of the stock - amount owed on the margin loan
The average depth of the limit order book is _____.
higher for the large stocks in the S&P 500 Index than for the smaller stocks in the Russell 2000 Index
The CFA Institute Standards of Professional Conduct require that members _____.
A. place their clients' interests before their own
B. disclose conflicts of interest to clients
C. inform their employers that they are obligated to comply with the Standards
all of these options
Trading on inside information is:
I. Prohibited by federal law
II. Prohibited by the CFA Institute Standards of Professional Conduct
III. Monitored by the SEC
I, II, and III
The ____ requires full disclosure of relevant information relating to the issue of new securities.
Securities Act of 1933
The SIPC was established by the ____.
A. Insider Trading Act of 1931
B. Securities Act of 1933
C. Securities Exchange Act of 1934
D. none of these options
none of these options
Maintenance requirements for margin accounts are set by ____.
brokerage firms
Which of the following are true concerning short sales of exchange-listed stocks?
I. Proceeds from the short sale must be kept on deposit with the broker.
II. Short-sellers must post margin with their broker to cover potential losses on the position.
III.
I and II only
The largest nongovernmental regulator of securities firms in the United States is ________.
the Financial Industry Regulatory Authority
In ________ markets, participants post bid and ask prices at which they are willing to trade, but orders are not automatically executed by computer. ____________ execute trades for people other than themselves, and in _______________ markets a computer ma
dealer; Brokers; electronic
An investor puts up $5,000 but borrows an equal amount of money from his broker to double the amount invested to $10,000. The broker charges 7% on the loan. The stock was originally purchased at $25 per share, and in 1 year the investor sells the stock fo
17%
The New York Stock Exchange is a good example of _________.
an auction market
The primary market where new security issues are offered to the public is a good example of _________.
a brokered market
The over-the-counter securities market is a good example of _________.
a dealer market
Level 3 NASDAQ subscribers _____.
A. are registered market makers.
B. can post bid and ask prices.
C. have the fastest execution of trades.
D. all of these options.
all of these options.
You sell short 300 shares of Microsoft that are currently selling at $30 per share. You post the 50% margin required on the short sale. If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Microsoft
20%
The commission structure on a stock purchase is $20 plus $.02 per share. If you purchase four round lots of a stock selling for $56, what is your commission?
$28.
Commission = 20 + (400 � .02) = $28
Underwriting is one of the services provided by _____.
investment bankers
Under firm-commitment underwriting, the ______ assumes the full risk that the shares cannot be sold to the public at the stipulated offering price.
underwriter
Explicit costs of an IPO tend to be around ______ of the funds raised.
7%
A red herring becomes a prospectus when ____.
the preliminary registration statement is approved by the SEC
Private placements can be advantageous, compared to public issue, because:
I. Private placements are cheaper to market than public issues.
II. Private placements may still be sold to the general public under SEC Rule 144A.
III. Privately placed securities
I only
A level _____ subscriber to the NASDAQ system may enter bid and ask prices.
3
Which one of the following statements about IPOs is not true?
IPOs generally provide superior long-term performance as compared to other stocks.
The NYSE acquired the ECN _______, and NASDAQ recently acquired the ECN ________.
Archipelago; Instinet
Rank the following types of markets from least integrated and organized to most integrated and organized:
I. Brokered markets
II. Continuous auction markets
III. Dealer markets
IV. Direct search markets
IV, I, III, II
As a result of flash crashes, the SEC is trying circuit breakers that will halt trading for 5 minutes if large stocks' prices change by more than _____ in a 5-minute period.
10%
Which one of the following is not an example of a brokered market?
NASDAQ
More than ______ of all trading is believed to be initiated by computer algorithms.
50%
Purchases of new issues of stock take place _________.
in the primary market
Initial margin requirements on stocks are set by _________.
the Federal Reserve
Which one of the following types of markets requires the greatest level of trading activity to be cost-effective?
Continuous auction market
Which one of the following is a false statement regarding NYSE specialists?
Specialists cannot trade for their own accounts.
Restrictions on trading involving insider information apply to:
I. Corporate officers and directors
II. Major stockholders
III. Relatives of corporate directors and officers
I, II, and III
An order to buy or sell a security at the current price is a ______________.
market order
The term inside quotes refers to _____.
the difference between the highest bid price and the lowest ask price in the limit order book.
The term latency refers to _____.
the amount of time it takes to accept, process, and deliver a trading order.
If an investor places a _________ order, the stock will be sold if its price falls to the stipulated level. If an investor places a __________ order, the stock will be bought if its price rises above the stipulated level.
stop-loss; stop-buy
Advantages of ECNs over traditional markets include all but which one of the following?
Ability to handle very large orders
The __________ was established to protect investors from losses if their brokerage firms fail.
SIPC
When matching orders from the public, a specialist is required to use the _______.
highest outstanding bid price and lowest outstanding ask price
The process of polling potential investors regarding their interest in a forthcoming initial public offering (IPO) is called ________.
book building
The bulk of most initial public offerings (IPOs) of equity securities goes to ___________.
institutional investors
Initial public offerings (IPOs) are usually ___________ relative to the levels at which their prices stabilize after they begin trading in the secondary market.
underpriced
According to multiple studies by Ritter, initial public offerings tend to exhibit __________ performance initially and __________ performance over the long term.
good; bad
Specialists try to maintain a narrow bid-ask spread because:
I. If the spread is too large, they will not participate in as many trades, losing commission income.
II. The exchange requires specialists to maintain price continuity.
III. Specialists are non
I and II only
In a __________ underwriting arrangement, the underwriter assumes the full risk that shares may not be sold to the public at the stipulated offering price.
firm-commitment
The ______________ is the most important dealer market in the United States, and the ______________ is the most important auction market.
NASDAQ; NYSE
The inside quotes on a limit order book can be found ______.
at the top of the list
The __________ system enables exchange members to send orders directly to a specialist over computer lines.
SUPERDOT
The fully automated trade-execution system installed on the NYSE is called _____.
Direct +
The NYSE Hybrid Market allows _____.
brokers to send orders either to an electronic system or to a specialist
Approximately __________ of trades involving shares issued by firms listed on the New York Stock Exchange actually take place on the New York Stock Exchange.
25%
The _________ price is the price at which a dealer is willing to purchase a security.
bid
The _________ price is the price at which a dealer is willing to sell a security.
ask
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 the _________.
bid-ask spread
The bid-ask spread exists because of _______________.
the need for dealers to cover expenses and make a profit
The NYSE has lost market share to ECNs in recent years. Part of the NYSE's response to the growth of ECNs has been to:
I. Purchase Archipelago, a major ECN, and rename it NYSE Arca
II. Enable automatic trade execution through its new Market Center
III. Im
I only
The cost of buying and selling a stock includes:
I. Broker's commissions
II. Dealer's bid-asked spread
III. Price concessions that investors may be forced to make
I, II, and III
Which of the following is (are) true about dark pools?
I. They allow anonymity in trading.
II. They often involve large blocks of stocks.
III. Trades made through them might not be reported.
I, II, and III
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 order
According to SEC Rule 415 regarding shelf registration, firms can gradually sell securities to the public for __________ following initial registration.
2 years
What happened to the effective spread on trades when the SEC allowed the minimum tick size to move from one-eighth of a dollar to one-sixteenth of a dollar in 1997 and from one-sixteenth of a dollar to one cent in 2001?
The tick size decreased in both cases.
You sold short 300 shares of common stock at $30 per share. The initial margin is 50%. You must put up _________.
$4,500
Investment = 300(30)(.50) = 4,500
You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible loss?
Unlimited. There is no upper limit to the price of a share of stock and, therefore, no upper limit to the price you will have to pay to replace the 200 shares of Tuckerton.
You short-sell 200 shares of Tuckerton Trading Co., now selling for $50 per share. What is your maximum possible gain, ignoring transactions cost?
$10,000
You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you want to limit your loss to $2,500, you should place a stop-buy order at ____.
$62.50
Amount received from short sale = 200 � $50 = $10,000
Loss = $2,500 = 200P - 10,000
$12,500 = 200P, so P = $62.50
You purchased 200 shares of ABC common stock on margin at $50 per share. Assume the initial margin is 50% and the maintenance margin is 30%. You will get a margin call if the stock drops below ________. (Assume the stock pays no dividends, and ignore inte
$35.71
Equity = 200P - 5,000
Margin = (200P - 5,000)/200P = .30
200P - 5,000 = 60P
140P = 5,000
P = 35.71429
You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65%, and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $32 per share. Ignore interest on margin.
43%
Transactions that do not involve the original issue of securities take place in _________.
secondary markets
What was the result of high-frequency traders' leaving the market during the flash crash of 2010?
Market liquidity decreased.
__________ often accompany short sales and are used to limit potential losses from the short position.
Stop-buy orders
The market share held by the NYSE Arca system in February 2011 was approximately ____.
10%
Regulation NMS:
I. Supports the goal of integrating financial markets
II. Requires the use of specialists to execute trades
III. Requires that exchanges honor quotes of other exchanges when they can be executed automatically
I and III only
The commission structure on a stock purchase is $50 plus $.03 per share. If you purchase 600 shares of a stock selling for $65, what is your commission?
$68
Commission = 50 + (600 � .03) = $68
All major stock markets today are effectively _______________.
electronic trading systems
In 2008, the NASDAQ stock market merged with _____.
OMX, which operates seven Nordic and Baltic stock exchanges
You hold 5,000 shares of the 1 million outstanding shares of Wealthy Wranglers common stock. You've just learned that the company plans to issue more shares, so that 2 million shares will be outstanding. This is called _____.
a seasoned equity offering
If an investor uses the full amount of margin available, the equity in a margin account used for a stock purchase can be found as ________.
market value of the stock - amount owed on the margin loan
The average depth of the limit order book is _____.
higher for the large stocks in the S&P 500 Index than for the smaller stocks in the Russell 2000 Index
The CFA Institute Standards of Professional Conduct require that members _____.
A. place their clients' interests before their own
B. disclose conflicts of interest to clients
C. inform their employers that they are obligated to comply with the Standards
all of these options
Trading on inside information is:
I. Prohibited by federal law
II. Prohibited by the CFA Institute Standards of Professional Conduct
III. Monitored by the SEC
I, II, and III
The ____ requires full disclosure of relevant information relating to the issue of new securities.
Securities Act of 1933
The SIPC was established by the ____.
A. Insider Trading Act of 1931
B. Securities Act of 1933
C. Securities Exchange Act of 1934
D. none of these options
none of these options
Maintenance requirements for margin accounts are set by ____.
brokerage firms
Which of the following are true concerning short sales of exchange-listed stocks?
I. Proceeds from the short sale must be kept on deposit with the broker.
II. Short-sellers must post margin with their broker to cover potential losses on the position.
III.
I and II only
The largest nongovernmental regulator of securities firms in the United States is ________.
the Financial Industry Regulatory Authority
In ________ markets, participants post bid and ask prices at which they are willing to trade, but orders are not automatically executed by computer. ____________ execute trades for people other than themselves, and in _______________ markets a computer ma
dealer; Brokers; electronic
An investor puts up $5,000 but borrows an equal amount of money from his broker to double the amount invested to $10,000. The broker charges 7% on the loan. The stock was originally purchased at $25 per share, and in 1 year the investor sells the stock fo
17%
The New York Stock Exchange is a good example of _________.
an auction market
The primary market where new security issues are offered to the public is a good example of _________.
a brokered market
The over-the-counter securities market is a good example of _________.
a dealer market
Level 3 NASDAQ subscribers _____.
A. are registered market makers.
B. can post bid and ask prices.
C. have the fastest execution of trades.
D. all of these options.
all of these options.
You sell short 300 shares of Microsoft that are currently selling at $30 per share. You post the 50% margin required on the short sale. If you earn no interest on the funds in your margin account, what will be your rate of return after 1 year if Microsoft
20%
The commission structure on a stock purchase is $20 plus $.02 per share. If you purchase four round lots of a stock selling for $56, what is your commission?
$28.
Commission = 20 + (400 � .02) = $28