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Exam 3: Securities Markets

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Question 21

Multiple Choice

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Transactions that do not involve the original issue of securities take place in ________.

A) primary markets
B) secondary markets
C) over-the-counter markets
D) institutional markets

E) C) and D)
F) All of the above

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Question 22

Multiple Choice

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You find that the bid and ask prices for a share are $10.25 and $10.30 respectively. If you purchase or sell the share you must pay a flat commission of $25. If you buy 100 shares of the share and immediately sell them, what is your total implied and actual transaction cost in dollars?

A) $50
B) $25
C) $30
D) $55

E) B) and C)
F) A) and D)

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Question 23

Multiple Choice

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Which one of the following statements about IPOs is not true?

The margin requirement on a share purchase is 25%. You fully use the margin allowed to purchase 100 shares of MSFT at $25. If the price drops to $22, what is your percentage loss?

Linking a/an ________ to a placement can address concerns about ownership dilution that may result from a placement alone.

If an investor places a ________ order the share will be sold if its price falls to the stipulated level. If an investor places a ________ order the share will be bought if its price rises above the stipulated level.

The commission structure on a share purchase is $20 plus $0.02 per share. If you purchase 4 round lots of a share selling for $56, what is your commission?

An investor buys $8 000 worth of a share priced at $40 per share using 50% initial margin. The broker charges 6% on the margin loan and requires a 30% maintenance margin. In one year the investor gets a margin call. At the time of the margin call the share's price must have been ________.

Margin is the amount contributed by ________.

The ________ price is the price at which a dealer is willing to sell a security.

If an investor uses the full amount of margin available, the equity in a margin account used for a share purchase can be found as ________.

The commission structure on a share purchase is $50 plus $0.03 per share. If you purchase 600 shares of a share selling for $65, what is your commission?

Which one of the following types of markets requires the greatest level of trading activity to be cost effective?

What is the capital raising process referred to in the situation where an investor has been offered the option of buying a number of shares unrelated to the size of her existing holding?

On a given day a share dealer maintains a bid price of $1000.50 for a bond and an ask price of $1003.25. The dealer made 10 trades which totaled 500 bonds traded that day. What was the dealer's gross trading profit for this security?

You short-sell 200 shares of Rock Creek Fly Fishing Co., now selling for $50 per share. If you wish to limit your loss to $2 500, you should place a stop-buy order at ________.

The drawback of a ________ is that it may take time to organise and complete and may also require the release of a prospectus.

If you want the trade done quickly, which type of trading order might you give to your broker?

The allowable margin depends on ________.

You sold-short 300 shares at $30 per share. The initial margin is 50%. You must put up ________.