UNIT 17 CHECKPOINT EXAM Flashcards

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1
Q

An investor receives a quote of 48.70—48.75 for XYZ common stock. Which of these is true?

I. Purchasing the stock will cost $48.70 per share.
II. Purchasing the stock will cost $48.75 per share.
III. The spread is $.05.
IV. The investor will receive $48.75 per share if selling.

A) I and III
B) III and IV
C) I and IV
D) II and III

A

D) II and III

II. Purchasing the stock will cost $48.75 per share.
III. The spread is $.05.

Explanation
Quotes are provided in bid-ask form. The first number, the bid, is the price an investor can sell a security. The second number, the ask, is the price an investor will need to pay to buy the security. The spread is the difference between these two numbers.

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2
Q

An investor receives a quote of 32–32.15 for XYZ common stock. Which of these is correct?

I. Purchasing the stock will cost $32 per share.
II. Purchasing the stock will cost $32.15 per share.
III. The spread is $.15.
IV. The investor will receive $32.15 per share if selling.

A) I and IV
B) I and III
C) II and III
D) III and IV

A

C) II and III

II. Purchasing the stock will cost $32.15 per share.
III. The spread is $.15.

Explanation
A quote always represents the bid and the ask (offer) price. Investors pay the current ask price when purchasing and receive the current bid price when selling. The spread is the difference between the bid and the ask.

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3
Q

To fill a customer buy order, over-the-counter, your broker-dealer requests a quote from a market maker for 800 shares. The response is 15 bid, and ask 15.25. If the order is placed, the market maker must sell

A) 100 shares at $15.25 per share.
B) 800 shares at no more than $15 per share.
C) 800 shares at $15.25 per share.
D) 800 shares at $15 per share.

A

C) 800 shares at $15.25 per share.

Explanation
This is a buy order. The quote was for 800 shares, and the dealer did not place any qualifiers on the quote. The dealer is committed to selling 800 shares at the ask.

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4
Q

The current quote for Generic Motors stock is bid 32-ask 32.05 5 × 2. Your customer places an order to sell 300 shares. How much will they likely receive, before commission?

A) $9,600
B) $9,615
C) Cannot be determined because only 200 shares are available on this side of the quote
D) $3,200

A

A) $9,600

Explanation
Your customer will sell at the bid (32), or likely very close to it. The bid size is 500 shares so the market can absorb the entire order. 32 × 300 = $9,600. Customers who are selling receive the bid. Those who are buying pay the ask. The size shows bid × ask; 500 shares may be sold at 32 and 200 shares are available to buy at 32.05.

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5
Q

Seabird Airlines common stock is listed on the NYSE. Appalachia Securities is an over-the-counter market maker and has a posted quote for Seabird of 55.25–55.50. If Appalachia wants to enter a new quote, the smallest incremental change is

A) $ 0.01.
B) $ 0.001.
C) $ 0.05.
D) $ 0.25.

A

A) $ 0.01.

Explanation
The correct answer is $0.01. This stock is quoted in increments of no less than one cent ($0.01). Sub-penny pricing is only allowed on stocks trading below a dollar.

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