Investment 320 Dr. Ahmed Y. Dashti

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1 Investment 320 Dr. Ahmed Y. Dashti د. احمد يوسف دشتي Interactive quiz from text's web 1. An investor with a short position will profit if the security increases in value. 2. The Security Investors Protection Corporation (SIPC) which insures brokerage accounts is a government agency. 3. Mutual funds are a means of combining or pooling the funds of large groups of investors. 4. There is no difference, really, between investing and saving. 5. Investors are rapidly switching to on-line brokerage accounts because they offer: A) reduced costs B) easy access to account and market information C) time efficiencies D) all of the above 6. If you take $5,000 of your own money and borrow an additional $1,000 from your broker, your total investment will be $6,000. What is your margin? A) 83% B) 16.7% C) 20% D) 71.14% 7. The minimum margin that must be present at all times in a margin account is the A) maintenance margin. B) initial margin. C) call margin. D) required margin. 8. If you short sell stock for $5,000, what is the maximum amount you can lose? A) $1,000 B) $500 C) Any amount less than $5,000 D) There is no limit 9. Attempting to identify superior securities within a broad class is called A) asset allocation. B) security synthesis. C) asset analysis. D) security analysis.

2 10. You believe that BancOne stock is going to fall and you have decided to short sell 1,000 shares. If the current share price is $75 and the initial margin requirement is 80%, how much money will you be required to invest? A) $60,000 B) $75,000 C) $15,000 D) $ Compared to full-service brokers, discount brokers provide a minimum set of services. Which of the following are both discount and full-service brokers likely to offer their clients? A. hand-holding services. B. margin accounts. C. extensive investment research publications. D. investment counseling and advice. When setting up a margin account the proportion which must be funded with cash is termed the A. broker s call rate. B. settlement constraint. C. initial minimum margin requirement. D. maintenance margin. 1. The four key areas in formulating an investment strategy are investment management, market timing, asset allocation, and security selection. 2. Mutual funds are a means of combining or pooling the funds of large groups of investors. 3. Asset allocation is essentially a macro level activity because the focus is on whole markets or classes of assets. 4. The amount of common stock held in short positions is called short interest. 5. Three key areas that must be addressed when formulating an investment strategy are: 1) investment management, 2) asset allocation, and 3) security selection. 6. Each of the following is a group into which brokers are typically divided, EXCEPT: A) full service B) discount C) deep discount D) full discount

3 7. Discount brokers offer investment counseling than the deep discounters and commissions than the full service brokers. A) less, lower B) less, higher C) more, higher D) more, lower 8. If you take $5,000 of your own money and borrow an additional $1,000 from your broker, your total investment will be $6,000. What is your margin? A) 83% B) 16.7% C) 20% D) 71.14% 9. The minimum margin that must be supplied when a margin transaction is created is the A) maintenance margin. B) initial margin. C) call margin. D) primary margin. 10. An agreement under which a broker is the registered owner of a security is referred to as A) hypothecation. B) street name. C) alias. D) registered name. Test Your Investment Quotient 1.CFA. An individual investor s investment objectives should be expressed in terms of: a. Risk and return. b. Capital market expectations. c. Liquidity needs and time horizon. d. Tax factors and legal and regulatory constraints. 2.CFA. Asset Allocation Which of the following best reflects the importance of the asset allocation decision to the investment process? The asset allocation decision: a. Helps the investor decide on realistic investment goals. b. Identifies the specific securities to include in a portfolio. c. Determines most of the portfolio s returns and volatility over time. d. Creates a standard by which to establish an appropriate investment horizon. 3. Leverage You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker. Later, the value of your stock holdings falls to $150,000, whereupon you get nervous and close your account. What is the percentage return on your investment (ignore interest paid)? a. 0 percent b. -25 percent c. -50 percent d. -75 percent

4 4. Leverage You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks. Later, the value of the stocks held short rises to $250,000, whereupon you get nervous and close your account. What is the percentage return on your investment? a. 0 percent b. -25 percent c. -50 percent d. -75 percent 5. Account Margin You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker. Later, the value of your stock holdings falls to $175,000. What is your account margin in dollars? a. $50,000 b. $75,000 c. $100,000 d. $150, Account Margin You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker. Later, the value of your stock holdings falls to $150,000. What is your account margin in percent? a. 25 percent b. 33 percent c. 50 percent d. 75 percent 7. Account Margin You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks on margin. Later, the value of the stocks held short rises to $225,000. What is your account margin in dollars? a. $50,000 b. $75,000 c. $100,000 d. $150, Account Margin You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks on margin. Later, the value of the stocks held short rises to $250,000. What is your account margin in percent? a. 20 percent b. 25 percent c. 33 percent d. 50 percent 9. Margin Calls You deposit $100,000 cash in a brokerage account and purchase $200,000 of stocks on margin by borrowing $100,000 from your broker, who requires a maintenance margin of 30 percent. Which of the following is the largest value for your stock holdings for which you will still receive a margin call? a. $200,000 b. $160,000 c. $140,000 d. $120,000

5 10. Margin Calls You deposit $100,000 cash in a brokerage account and short sell $200,000 of stocks. Your broker requires a maintenance margin of 30 percent. Which of the following is the lowest value for the stocks you are holding short for which you will still receive a margin call? a. $260,000 b. $240,000 c. $220,000 d. $200, Investment Decisions Which of the following investment factors, strategies, or tactics is the least relevant to a passive investment policy? c. Political environment d. Tax status 12. Investment Decisions Which of the following investment factors, strategies, or tactics is most associated with an active investment policy? d. Tax status 13. Investment Decisions Which of the following investment strategies or tactics will likely consume the greatest amount of resources, time, effort, and so on, when implementing an active investment policy? d. Tax strategy 14. Investment Decisions Which of the following investment strategies or tactics is likely the most relevant in the decision to short sell a particular stock? d. Tax strategy 15. Investment Constraints Which of the following investment constraints is expected to have the most fundamental impact on the investment decision process for a typical investor? a. Investor s tax status b. Investor s time horizon c. Investor s need for liquidity d. Investor s attitude toward risk