CH 2 Flashcards
1) Market timing is the:
A) placing of an order within the last half-hour of trading for a day.
B) placing of trades within the last half-hour prior to the commencement of daily trading.
C) period of time between the placement of a short sale and the covering of that sale.
D) buying and selling of securities in anticipation of the overall direction of the
market.
E) staggering of either buy or sell orders to mask the total size of a large transaction.
D
2) Asset allocation is the:
A) distribution of investment funds among various broad asset classes.
B) selection of specific securities within a particular class or industry.
C) division of a purchase price between a cash payment and a margin loan.
D) dividing of assets into those that are hypothecated and those that are not.
E) division of a portfolio into short and long positions.
A
3) Jack is researching chemical companies in an effort to determine which company’s stock he should purchase. This process is known as:
A) security selection.
B) purchase shorting.
C) marketing research.
D) asset allocation.
E) market timing.
A
4) A Roth IRA:
A) funds are taxed at the time you begin withdrawals.
B) is a form of “tax-deferred” account.
C) invests after-tax dollars.
D) are well-suited to investors nearing retirement.
E) is the type of account offered by most employers.
C
5) A brokerage account in which purchases can be made using credit is referred to as which type of account?
A) funds available
B) cash
C) call
D) margin
E) clearing
D
6) Kay just purchased $5,000 worth of stock. She paid $3,000 in cash and borrowed $2,000. In this example, the term margin refers to:
A) the percentage of the purchase that was paid in cash.
B) any future increase in the value of the stock.
C) the percentage of the purchase paid with borrowed
funds.
D) any future decrease in the value of the stock.
E) the total amount of the purchase.
A
7) Which one of the following best describes the term “initial margin”?
A) Amount of cash that must be paid when a broker issues a margin call
B) Total loan amount offered to a customer by a brokerage firm to cover future purchases
C) Amount of money that must be deposited to open a margin account with a broker
D) Amount of money borrowed when a security is purchased
E) Amount of cash that must be paid to purchase a security on margin
E
8) The minimum equity that must be maintained at all times in a margin account is called the:
A) call requirement.
B) maintenance margin.
C) initial equity position.
D) margin call.
E) initial margin.
B
9) When your equity position in a security is less than the required amount, your brokerage firm will issue a:
A) limit order.
B) leverage call.
C) margin call.
D) margin certificate.
E) cash certificate.
C
10) Sam purchased 500 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:
A) leveraging.
B) hypothecation.
C) margin calling.
D) street securitization.
E) maintaining the margin.
B
11) Staci owns 1,000 shares of stock in a margin account. Those shares are most likely held in:
A) transit.
B) her registered name.
C) street name.
D) a discretionary account.
E) a wrap account.
C
12) This morning, Josh sold 800 shares of stock that he did not own. This sale is referred to as a:
A) wrap trade.
B) hypothecated sale.
C) margin sale.
D) long position.
E) short sale.
E
13) The amount of common stock held in short positions is referred to as the short:
A) margin.
B) sale.
C) interest.
D) proceeds.
E) shares.
C
14) A company that owns income-producing real estate such as an apartment complex or a retail shopping center is called a(n):
A) EAR.
B) SPIC.
C) SIPC
D) REIT.
E) REEF
D
15) An investor who has a resource constraint:
A) has insufficient funds to purchase a security.
B) will only invest in socially acceptable securities.
C) has a relatively high marginal tax rate.
D) has only one source of income.
E) pays no income taxes.
A
16) To be considered liquid, a security must:
A) be held for less than one year.
B) pay dividends.
C) be able to be sold on short notice.
D) be able to be sold quickly with little, if any, price concession.
E) be held in a cash account.
D
17) Walter is trying to decide whether he wants to purchase shares in General Motors, Ford, or Honda, all of which are auto manufacturers. Walter is making a(n) _______ decision.
A) active strategy
B) risk aversion
C) tax-advantaged
D) asset allocation
E) security selection
E
18) 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.
A) tax-advantaged
B) asset allocation
C) active strategy
D) market timing
E) security selection
B
19) Kay plans to retire in two years and wishes to liquidate her account at that time. Kay has a ________ constraint.
A) liquidity
B) tax
C) special circumstances
D) resource
E) horizon
E
20) The SIPC:
A) guarantees cash balances held in brokerage accounts up to $500,000.
B) protects investors from missing assets when a brokerage firmcloses.
C) protects private brokerage firms from bankruptcy.
D) guarantees investors against any loss related to an investment account held at a
brokerage firm.
E) is an agency of the federal government.
B
21) The determination of which individual stocks to purchase within a particular asset class is referred to as:
A) market timing.
B) security analysis.
C) asset allocation.
D) market selection.
E) security selection.
E
22) An investor who follows a fully active strategy will:
A) maintain a relatively constant mix of asset classes while continually buying and
selling individual securities.
B) concentrate solely on asset allocation to maximize potential returns.
C) move money between asset classes as well as try to select the best performers in each class.
D) focus on picking individual stocks only.
E) move money between asset classes but will not be concerned about which
individual securities are owned.
C
23) Which one of the following decisions falls under the category of asset allocation?
A) Adopting a passive investment strategy
B) Deciding to actively analyse individual securities
C) Purchasing Ford stock rather than General Motors stock
D) Determining that thirty percent of a portfolio should be invested in bonds
E) Deciding to use an online broker
D
24) Tom recently inherited a large sum of money that he wants to invest in the stock market. Since he has no investment experience, he has decided that he would like to work with a professional who can explain the market to him and also manage his funds for him. Ted most likely needs the services offered by a(n):
A) full-service broker.
B) deep-discount broker.
C) online broker.
D) discount broker.
E) cyber broker.
A
