FIN 4223 EXAM 1 QUESTIONS AND
ANSWERS
the0dividend0yield0is0defined0as0the0annual0dividend0expressed0as0a0percentage0of0-
0ans✔initial0stock0price
what0should0be0used0to0compare0the0overall0performance0of030different0investments0-
0ans✔EAR0(effective0annual0return)
best0method0of0comparing0the0returns0on0various0sized0investments0-
0ans✔percentage0return
distribution0of0investments0funds0among0various0broad0asset0classes0-
0ans✔asset0allocation
researching0chemical0companies0in0an0effort0to0determine0which0companies0stock0he0
should0purchase...a0process0know0as0-0ans✔security0selection
amount0of0cash0that0must0be0paid0to0purchase0a0security0on0margin0-
0ans✔initial0margin
minimum0equity0that0must0be0maintained0at0all0times0in0a0margin0account0-
0ans✔maintenance0margin
when0your0equity0position0in0a0security0is0less0than0the0required0amount0your0firm0will
0issue0a0-0ans✔margin0call
he0wants0to0purchase0shares0in0GM,0ford,0Honda0all0of0which0are0auto0manufacturers.
..which0is0a0-0ans✔security0selection
invest055%0of0her0money0in0large0company0stocks,040%0in0small,0and05%0in0cash...0t
his0is0an0-0ans✔asset0allocation
determination0of0which0individual0stocks0to0purchase0within0a0particular0asset0class0-
0ans✔security0selection
who0sets0the0absolute0minimum0initial0margin0requirement0-0ans✔Federal0Reserve
, who0sets0the0maintenance0margin0requirement0for0your0account0-0ans✔your0broker
opt0to0purchase0shares0of0stock0on0margin0rather0than0with0cash0will...0-
0ans✔increase0your0maximum0potential0rate0of0return
whats0the0purpose0of0a0margin0call0-
0ans✔to0demand0funds0to0increase0your0margin0position
if0the0price0of0the0security0increases0-
0ans✔an0investor0with0a0long0position0in0a0security0will0make0money
august080of0this0Brett0sold05000shares0for0$240on0sept060he0purchased05000shares0to0
cover0his0position.0this0transaction0is0a0-0ans✔short0sale
If0you0benefit0when0a0security0decreases0in0value,0you0have0a0_____0position0in0the0s
ecurity.0-0ans✔short
fixed0income0is0defined0as0-
0ans✔long0term0debt0obligation0that0pays0scheduled0fixed0payments
futures0contract0is0an0agreement0that...0-
0ans✔to0exchange0goods0on0a0specified0date0in0the0future0at0a0price0agreed0upon0tod
ay0(wheat)
A0fund0that0is0basically0an0index0fund0that0trades0like0a0closed-
end0fund0is0called0a(n):0-0ans✔exchange-traded0fund0(ETF)
what0is0a0call0option0-
0ans✔gives0the0buyer0the0right0to0purchase0an0asset0at0some0point0in0the0future
a0contract0that0grants0its0buyer0the0right0but0not0the0obligation0to0sell0an0asset0at0a0sp
ecified0prices0is0a0-0ans✔put0option
money0market0instruments0-0ans✔may0be0sold0on0discount0basis
money0market0instruments0are0not0-
0ans✔illiquid,0sold0in0small0denominations,0quoted0in0terms0of0a0spread,0or0not0resold
bonds0trades0are0reported0-0ans✔on0TRACE
beta0movers0bond0pays0an0annual0interest0payment0equal0to07.12%0of0-0ans✔1000
represents0residual0ownership0interest0in0the0issuer0-0ans✔common0stock
common0stock0-
0ans✔means0corporations0have0the0right0to0discontinue0paying0dividends
ANSWERS
the0dividend0yield0is0defined0as0the0annual0dividend0expressed0as0a0percentage0of0-
0ans✔initial0stock0price
what0should0be0used0to0compare0the0overall0performance0of030different0investments0-
0ans✔EAR0(effective0annual0return)
best0method0of0comparing0the0returns0on0various0sized0investments0-
0ans✔percentage0return
distribution0of0investments0funds0among0various0broad0asset0classes0-
0ans✔asset0allocation
researching0chemical0companies0in0an0effort0to0determine0which0companies0stock0he0
should0purchase...a0process0know0as0-0ans✔security0selection
amount0of0cash0that0must0be0paid0to0purchase0a0security0on0margin0-
0ans✔initial0margin
minimum0equity0that0must0be0maintained0at0all0times0in0a0margin0account0-
0ans✔maintenance0margin
when0your0equity0position0in0a0security0is0less0than0the0required0amount0your0firm0will
0issue0a0-0ans✔margin0call
he0wants0to0purchase0shares0in0GM,0ford,0Honda0all0of0which0are0auto0manufacturers.
..which0is0a0-0ans✔security0selection
invest055%0of0her0money0in0large0company0stocks,040%0in0small,0and05%0in0cash...0t
his0is0an0-0ans✔asset0allocation
determination0of0which0individual0stocks0to0purchase0within0a0particular0asset0class0-
0ans✔security0selection
who0sets0the0absolute0minimum0initial0margin0requirement0-0ans✔Federal0Reserve
, who0sets0the0maintenance0margin0requirement0for0your0account0-0ans✔your0broker
opt0to0purchase0shares0of0stock0on0margin0rather0than0with0cash0will...0-
0ans✔increase0your0maximum0potential0rate0of0return
whats0the0purpose0of0a0margin0call0-
0ans✔to0demand0funds0to0increase0your0margin0position
if0the0price0of0the0security0increases0-
0ans✔an0investor0with0a0long0position0in0a0security0will0make0money
august080of0this0Brett0sold05000shares0for0$240on0sept060he0purchased05000shares0to0
cover0his0position.0this0transaction0is0a0-0ans✔short0sale
If0you0benefit0when0a0security0decreases0in0value,0you0have0a0_____0position0in0the0s
ecurity.0-0ans✔short
fixed0income0is0defined0as0-
0ans✔long0term0debt0obligation0that0pays0scheduled0fixed0payments
futures0contract0is0an0agreement0that...0-
0ans✔to0exchange0goods0on0a0specified0date0in0the0future0at0a0price0agreed0upon0tod
ay0(wheat)
A0fund0that0is0basically0an0index0fund0that0trades0like0a0closed-
end0fund0is0called0a(n):0-0ans✔exchange-traded0fund0(ETF)
what0is0a0call0option0-
0ans✔gives0the0buyer0the0right0to0purchase0an0asset0at0some0point0in0the0future
a0contract0that0grants0its0buyer0the0right0but0not0the0obligation0to0sell0an0asset0at0a0sp
ecified0prices0is0a0-0ans✔put0option
money0market0instruments0-0ans✔may0be0sold0on0discount0basis
money0market0instruments0are0not0-
0ans✔illiquid,0sold0in0small0denominations,0quoted0in0terms0of0a0spread,0or0not0resold
bonds0trades0are0reported0-0ans✔on0TRACE
beta0movers0bond0pays0an0annual0interest0payment0equal0to07.12%0of0-0ans✔1000
represents0residual0ownership0interest0in0the0issuer0-0ans✔common0stock
common0stock0-
0ans✔means0corporations0have0the0right0to0discontinue0paying0dividends
