978-0134083308 Chapter 3 Part 3

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5) Stocks held in street name can be quickly sold online or by telephone.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 4

6) Brokerage firms are not allowed to make specific buy or sell recommendations to their

clients.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 4

7) Dividends earned on securities held in street name by the brokerage are not reported to the

Internal Revenue Service.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 4

8) Which one of the following statements about stockbrokers is correct?

A) Stockbrokers act as dealers in the securities they trade.

B) Stockbrokers must be licensed by the Securities and Exchange Commission.

C) Stockbrokers are regulated by financial consultants.

D) Stockbrokers execute trades on the floor of the New York Stock Exchange on behalf of

account executives.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 4

9) Which one of the following statements concerning stock trades is correct?

A) Brokerage firms send customer orders to a market maker on the floor of the NYSE.

B) Confirmation of a trade is transmitted directly from the NYSE to the customer who placed

the order.

C) A broker transmits OTC orders from a customer directly to a floor broker in the OTC

market.

D) Brokerage firms generally hold securities in street name so they can be transferred without

the customer’s signature.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 4

10) Unless the investor has requested another arrangement, cash from dividends and the sale of

stock is normally

A) deposited in a Money Market Account offered by the brokerage.

B) automatically reinvested in more stock.

C) direct deposited to the investor’s bank account.

D) held in escrow by the brokerage until it is be reinvested.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 4

11) Which of the following services would not be available through premium discount

brokerages?

A) fast execution of trades

B) lower commissions on most trades

C) phone conversations and advice from a broker

D) the ability to place limit and stop-loss orders

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Revised

Learning Goal: Learning Goal 4

12) Which is the correct order of events when an individual buys a stock through a brokerage

firm?

I. The order is transmitted to the main office of the brokerage firm.

II. The customer places the order with their local stockbroker.

III. The confirmation of the order is sent to the broker placing the order.

IV. The order is sent to the floor of the exchange.

A) I, II, III, IV

B) II, I, III, IV

C) II, IV, I, III

D) II, I, IV, III

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 4

13) Holding securities in street name

A) makes the trading of securities easier and more efficient for individual investors.

B) allows the brokerage firm to sell securities without the customers approval.

C) enables the brokerage firm to collect the stock dividends as compensation for their services.

D) means that the brokerage firm actually owns the securities.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 4

14) A report describing the transactions in an account, listing the dividend and interest

payments received, and detailing the current holdings is called a

A) prospectus.

B) red herring.

C) statement.

D) street certificate.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 4

15) A brokerage firm which provides analyst reports, investment advice and information as

well as online brokerage services is called a(n)

A) premium discount broker.

B) full-service broker.

C) basic discount broker.

D) electronic broker.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 4

16) When deciding between a discount or full service brokerage, the investor should consider

A) trading costs.

B) her comfort level making unassisted investment decisions.

C) her awareness of potential investment opportunities.

D) all of the above.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: New Question

Learning Goal: Learning Goal 4

17) Which one of the following is the LEAST important when selecting a stockbroker?

A) knowing the stockbroker personally

B) selecting a stockbroker who best understands your investment goals

C) considering the services offered and the related costs

D) getting referrals from personal acquaintances with similar investment objectives

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 4

3.5 Learning Goal 5

1) A limit order is an order to buy at the limit price or less.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Revised

Learning Goal: Learning Goal 5

2) A limit order is an order to sell at the limit price or less.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

3) A stop-loss order is activated once the stock reaches the specified price.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

4) When placing an order on-line, an individual investor should always double check the ticker

symbol prior to submitting the order.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

5) Many day traders are also margin traders.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

6) Stop orders are used only when selling a stock.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: New Question

Learning Goal: Learning Goal 5

7) Most day traders avoid holding stocks overnight because they fear large price changes while

the markets are closed.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: New Question

Learning Goal: Learning Goal 5

8) It is generally a good idea to use limit orders when trading after hours.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

9) Traders who hold stocks for less than a full day can reduce the tax burden on their profits.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

10) Commission structures vary with the type of security being traded, the type of broker

involved and the size of the order.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

11) Small investors normally have a negotiated commission schedule while large investors

benefit from a fixed-commission schedule.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

12) Commissions for on-line trades are considerable lower than for orders placed with a full-

service broker.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: New Question

Learning Goal: Learning Goal 5

13) SIPC insurance is offered by some full-service brokers to protect investors from large

losses.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: New Question

Learning Goal: Learning Goal 5

14) Many brokerage firms require that disputes between individual investors and brokers be

settled through arbitration.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

15) The Securities Investors Protection Corporation protects investors from brokers who offer

incompetent advice.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: New Question

Learning Goal: Learning Goal 5

16) Excessively trading a customers account to increase a stockbrokers commission income is

A) an acceptable method of timing the market to increase rates of return.

B) called churning which is an illegal practice.

C) probably unethical but yet is acceptable by the securities industry.

D) permitted provided that the customer does not object.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

17) Which of the following practices is NOT recommended for on-line traders?

A) Double check stock symbols to be sure you are ordering the right stock.

B) Use limit orders rather than market orders, especially when trading after hours.

C) Trade as often as possible to maintain a strong relationship with the brokerage.

D) Double check your order to be sure the quantity of shares and the price is what you

intended.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: New Question

Learning Goal: Learning Goal 5

18) When an investor places a ________ order, he agrees to buy or sell at the best available

price when the trade is executed.

A) market

B) limit

C) stop

D) stop-limit

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: New Question

Learning Goal: Learning Goal 5

19) An individual investor who wishes to borrow money to buy stocks must open a

A) signature account.

B) margin account.

C) joint account.

D) custodial account.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

20) The current price of XUM stock is $35. Jason places a limit order for 100 shares at $30,

GTC. The price fall so $30.05 and the rises over the course of a month to $42.

A) Jason has a gain of $1,200.

B) Jason has a gain of $1,195.

C) Jason does not own the stock, but will if his trade can ever be executed at $30.00 or better.

D) Jason has a loss of $1,195.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

21) A margin account

A) can be opened by any investor who wants to purchase securities by charging them to his/her

credit card.

B) allows an investor to borrow one hundred percent of the cost of the securities purchased.

C) allows an investor to borrow a portion of the purchase price at a reasonable rate of interest.

D) is permitted only in wrap accounts.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

22) Which of the following are characteristics of a wrap account?

I. a flat amount of commission per transaction

II. an increased probability of account churning

III. a money manager

IV. detailed performance reports

A) I and II only

B) III and IV only

C) II, III and IV only

D) I, III and IV only

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5

23) An odd-lot trade involves a trade

A) of only 100 shares.

B) that is generally priced at a discount to the market price.

C) of 100,000 shares or more.

D) consisting of any number of shares that is not a multiple of 100.

managers

AACSB: 8 Application of knowledge (Able to translate knowledge of business and management

into practice)

Question Status: Previous Edition

Learning Goal: Learning Goal 5