Exam 1

.docx

School

University of Texas, Permian Basin *

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Course

4325

Subject

Finance

Date

Jan 9, 2024

Type

docx

Pages

12

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You purchased 1,000 shares of PINS common stock on margin at $19 per share. Assume the initial margin is 50%, and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend; ignore interest on margin. $12.86 You Answered $15.75 $19.67 Correct Answer $13.57 1.000 shares $19 x 0.5 = $19,000 0.5 = $9,500 (loan amount); 0.30 = (1,000P - $9,500)/1,000P: 300P = 1,000P - $9.500; -700P = -$9.500; P = $13.57. Question 2 Which of the following orders is most useful to short sellers who want to limit their potential losses? Limit order Discretionary order Limit-loss order Stop-buy order By issuing a stop-buy order, the short seller can limit potential losses by assuring that the stock will be purchased (and the short position closed) if the price increases to a certain level. Question 3 0 / 1 pts Which of the following orders instructs the broker to sell at or above a specified price? You Answered Limit-buy order Discretionary orden Correct Answer
Limit-sell order Stop-buy onder Market onder Limit-sell orders are to be executed the market price increases to the specified limit price. 1/1 pts Question 4 You sell short 100 shares of Loser Co. at a market price of $45 per share. Your maximum possible loss is $4.500. -Correct! unlimited 59.000 Cannot be determined from the information given A short seller loses money when the stock price rises. Since there is no upper limit on the stock price, the maximum theoretical loss is unlimited Question 6 0 / 1 pts You sold short 100 shares of common stock at $45 per share. The initial margin is 50%. At what stock price would you receive a margin call if the maintenance margin is 35%? Correct Answer $50 $65 You Answered $35 540 Equity = 100($45) * 1.5 = $6,750; 0135 = ($6,750 - 100P)/100P; 35P = $6,750 - 100P; 135P = $6,750; P = $50.00
Question 7 1 / 1 pts Multiple Mutual Funds had year-end assets of $457,000,000 and liabilities of $17,000,000. There were 24,300,000. shares in the fund at year end. What was Multiple Mutual's net asset value? Correct! $18.11 $18.81 $69.96 $7.00 ($457.000.000 - 17.000.000)/24,300,000 = $18.11. Question 8 1/1 pts Pinnacle Fund had year-end assets of $825.000.000 and liabilities of $25,000,000. If Pinnacle's NAV was $32.1, how many shares must have been held in the fund? 21.619.346.92 22.930,546.28 Correct! 24,860,161.59 25.693,645.2 ($825,000,000 - 25,000,000)/$32.18 = 24.860,161.59. Question 9 1/1 pts Which of the following statements about real estate investment trusts is true? REITs may be equity trusts or mortgage trusts REITs are usually highly leveraged REITs are similar to closed-end funds REITs may be equity trusts or mortgage trusts and are usually leveraged Correct!
All of the options are true. Real estate investment trusts invest in real estate or real-estate-secured loans. They may raise capital from banks and by issuing mortgages. They are similar to closed-end funds and shares are typically exchange traded Question 10 1/1 pts Compared to mutual funds, hedge funds may use the following strategy. Growth O Value Sector specialization Correct! Significant leverage Because hedge funds are only lightly regulated, their managers can pursue investment strategies involving, for example, heavy use of derivatives, short sales, and leverage; such strategies typically are not open to mutual fund managers. Question 11 1/1 pts are real assets Land Machines Stocks and bonds wledge Land, machines, and knowledge Land, machines and knowledge are real assets stocks and bonds are financial assets, Question 12 1/1 pts The value of a derivative security
Correct! depends on the value of the related security. is unable to be calculated. is unrelated to the value of the related security. has been enhanced due to the recent misuse and negative publicity regarding these instruments. is worthless today. Of the factors cited above, only the value of the related security affects the value of the derivative and/or is a true statement. Question 13 Which of the following portfolio construction methods starts with asset allocation? Correct Answer O Top-down Bottom-up Middle-out Buy and hold You Answered Asset allocation Bottom-up refers to using security analysis to find securities that are attractively priced. Question 14 0 / 1 pts Financial intermediaries exist because small investors cannot efficiently diversify their portfolios. assess credit risk of borrowers. advertise for needed investments. You Answered diversify their portfolios and ess credit risk of borrowers. Correct Answer All of the options.
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