FINC 3610 Final Exam Prep Newest Actual Exam With
Complete 100 Questions And Correct Detailed
Answers (Verified Answers) ||Already Graded
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What is a long purchase? What expectation underlies
such a purchase? What is margin trading. What is the
main reason that investors sometimes use it when making
long purchases? - ANSWER-A 'long' purchase occurs
when an investor buys a security in the hope that it will
increase in price and can be sold at a later time for a
profit. The long purchase is the most common type of
transaction. Its returns are the result of dividends or
interest paid to the security holder and capital gains or
,losses (the difference between the purchase price and the
sale price.)
Trading on margin involves buying securities partly with
borrowed funds. Investors use margin to lower the amount
of their own money involved in investments. This allows
the investor to buy more securities than he otherwise
could have. Using borrowed money creates leverage
which magnifies both gains and losses. When an investor
sells his investment, the proceeds first pay-off the loan
(plus interest) and any remaining profits belong to the
investor. Buying on margin, however, is risky since the
investor can lose more money than he initially invested.
How does margin trading magnify profits and losses?
What are the main advantages and disadvantages of
,margin trading? - ANSWER-When buying on margin, the
investor puts up part of the required capital. This is the
equity portion of the investment and is the investor's
margin. The investor's brokerage house then lends the
remaining money necessary to make the transaction.
Magnification of profits is the main advantage of margin
trading. This is called financial leverage which is created
when an investor purchases securities using borrowed
funds. Although only a portion of the investment is
financed by the investor, he receives all the capital gains
(less costs) so the return on the personal funds he
invested is magnified. Through leverage, investors can (1)
increase the size of their total investment, or (2) purchase
additional securities using less of their own funds.
Additionally, margin trading can be used to increase
diversification or let investors take larger positions in
, securities they find attractive. The main disadvantage of
margin trading is risk. If the investment's price moves
against the investor, his losses are magnified. An investor
can lose more than his initial investment. Additionally,
interest rates on the debit balance can be high and
significantly reduce the investor's returns.
Describe the procedures and regulations associated with
margin trading. Include an explanation of restricted
accounts, maintenance margin, and margin call. -
ANSWER-To execute a margin transaction, an investor
must establish a margin account. Although the Fed sets
the minimum amount of equity for margin transactions, it is
not uncommon for brokerage houses to set their own,
more restrictive requirements.
Complete 100 Questions And Correct Detailed
Answers (Verified Answers) ||Already Graded
A+||Brand New Version!
What is a long purchase? What expectation underlies
such a purchase? What is margin trading. What is the
main reason that investors sometimes use it when making
long purchases? - ANSWER-A 'long' purchase occurs
when an investor buys a security in the hope that it will
increase in price and can be sold at a later time for a
profit. The long purchase is the most common type of
transaction. Its returns are the result of dividends or
interest paid to the security holder and capital gains or
,losses (the difference between the purchase price and the
sale price.)
Trading on margin involves buying securities partly with
borrowed funds. Investors use margin to lower the amount
of their own money involved in investments. This allows
the investor to buy more securities than he otherwise
could have. Using borrowed money creates leverage
which magnifies both gains and losses. When an investor
sells his investment, the proceeds first pay-off the loan
(plus interest) and any remaining profits belong to the
investor. Buying on margin, however, is risky since the
investor can lose more money than he initially invested.
How does margin trading magnify profits and losses?
What are the main advantages and disadvantages of
,margin trading? - ANSWER-When buying on margin, the
investor puts up part of the required capital. This is the
equity portion of the investment and is the investor's
margin. The investor's brokerage house then lends the
remaining money necessary to make the transaction.
Magnification of profits is the main advantage of margin
trading. This is called financial leverage which is created
when an investor purchases securities using borrowed
funds. Although only a portion of the investment is
financed by the investor, he receives all the capital gains
(less costs) so the return on the personal funds he
invested is magnified. Through leverage, investors can (1)
increase the size of their total investment, or (2) purchase
additional securities using less of their own funds.
Additionally, margin trading can be used to increase
diversification or let investors take larger positions in
, securities they find attractive. The main disadvantage of
margin trading is risk. If the investment's price moves
against the investor, his losses are magnified. An investor
can lose more than his initial investment. Additionally,
interest rates on the debit balance can be high and
significantly reduce the investor's returns.
Describe the procedures and regulations associated with
margin trading. Include an explanation of restricted
accounts, maintenance margin, and margin call. -
ANSWER-To execute a margin transaction, an investor
must establish a margin account. Although the Fed sets
the minimum amount of equity for margin transactions, it is
not uncommon for brokerage houses to set their own,
more restrictive requirements.
