Investments final exam actual questions with well elaborated answers.
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Money markets - correct answer short term debt securities, large denomination
fixed income securities - correct answer longer term instruments; government issues(U.S treasury bonds and notes); private iss...
Money markets - correct answer short term debt securities, large
denomination
fixed income securities - correct answer longer term instruments; government
issues(U.S treasury bonds and notes); private issues(corporate bonds, mortgage backed securities)
issues with price weighted index - correct answer similar % change movements
in higher price stocks cause proportionally larger changes in the index; and split arbitrarily reduce
weights of stocks that split in the index
Purpose of Financial markets - correct answer facilitate low cost investments,
bring together buyers and sellers at low cost, reduce information costs associated with investments
direct search markets - correct answer buyers and sellers locate each other on
their own
brokered markets - correct answer Third-party assistance in locating buyer or
seller
dealer markets - correct answer Third party acts as intermediate buyer/seller
auction markets - correct answer Brokers and dealers trade in one location
Trading is more or less continuous
market order - correct answer execute immediately at best price
bid price - correct answer the price at which a dealer or other trader is willing
to purchase a security
,ask price - correct answer the price at which a dealer or other trader will sell a
security
price contingent order - correct answer Buy/sell at specified price or better
Limit buy/sell order: specifies price at which investor will buy/sell
Stop order: not to be executed until price point hit
over-the-counter market (OTC) - correct answer informal network of
brokers/dealers who negotiate securities sales
specialists - correct answer makes market in shares of one or more firms;
maintains "fait and orderly market" by dealing personally
Algorithmic trading - correct answer the use of computer programs to make
rapid trading decisions
high frequency trading - correct answer a subset of algorithmic trading that
relies on computer programs to make very rapid trading decisions
dark pools - correct answer electronic trading networks where participants can
anonymously buy or sell large blocks of securities
Margin - correct answer potion of purchase price contributed by the investor
(Equity value/value of stock)
buying on margin - correct answer describes securities purchased with money
borrowed in part from broker
Maintenance margin requirement - correct answer minimum percentage
margin before additional funds must be put into account; exchange mandate minimum 25%
, margin call - correct answer Notification from broker that you must put up
additional funds or have position liquidated
short sales - correct answer the sale of shares not owned by the investor but
borrowed through a broker and later purchased to replace the loan
In securities markets, there should be a risk-return trade-off with higher-risk assets having _________
expected returns than lower-risk assets
a. higher
b. lower
c. the same
d. The answer cannot be determined from the information given. - correct answer
a. higher
A T-bill quote sheet has 90-day T-bill quotes with a 4.92 bid and a 4.86 ask. If the bill has a $10,000 face
value, an investor could buy this bill for _____.
a. $10,000
b. $9,878.50
c. $9,877
d. $9,880.16 - correct answer b
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 interest on the margin loan.)
a. $26.55
b. $35.71
c. $28.95
d. $30.77 - correct answer b
Investment companies - correct answer Financial intermediaries that facilitate
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