36 - Market Organization and Structure

Question 1

An investor purchases 200 shares of Rubble, Inc. on margin. The shares are trading at $40. Initial and maintenance margins are 50% and 25%. If the company pays a dividend of $0.75 and the investor sells the stock at year-end for $50 per share, the return on the investment would be closest to:

Answer 1

10200 + 2000.75 = 2150
200400.5 = 4000

Return = 2,150 / 4,000 = 53.75%

Question 2

Which of the following statements about securities exchanges is most accurate?

Answer 2

Call markets are markets in which the stock is only traded at specific times.

Continuous markets are markets where trades occur at any time the market is open (i.e., they do not need to be open 24 hours per day). Setting one negotiated price is a method used in major continuous markets to set the opening price.

Question 3

A trader enters a limit order to buy 10,000 shares as a day order. The “day order” instruction is most accurately referred to as:

Answer 3

Validity instructions specify when a trade is to be executed. Specification of a day order (as opposed to a good-til-canceled order) is a validity instruction. (Module 36.3, LOS 36.g)

Question 4

Among the classifications of investment assets, “real assets” most likely include:

Answer 4

Real assets include real estate, durable equipment, and other physical assets. Equity securities such as industrial stocks are classified as financial assets. Currencies are a separate classification of investment assets.

(Module 36.1, LOS 36.b)