37
38) Angela placed a stop-limit order to sell 100 shares of RST stock at $28 when the market
price of RST was $31. Shortly after Angela placed her order, trading on RST was halted due to
a pending news announcement. When trading re-opens RST is priced at $24 a share. Within
minutes the price of RST began to drop further until it reached $19 a share. Which one of the
following statements is correct concerning Angela’s stop-limit order to sell?
A) Angela’s stock was sold for $28 a share.
B) Angela’s stock was sold for $24 a share.
C) Angela’s stock was sold at a price between $19 and $24 a share.
D) Angela still owns her 100 shares of stock.
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
39) At 10:45 a.m., Ashley placed a stop-loss order to sell 200 shares of Alpha stock at $43 a
share. At 2:15 p.m., the price of Alpha fell to $42.90 and then rose to $43.40 a share by the end
of the trading day. Ashley order was executed that day. Ashley would have received a price
A) of $42.90 a share for her stock since her order was already recorded in the specialist’s book.
B) of $43.40 a share for her stock since that was the closing price on the day of execution.
C) between $42.90 and $43.40 a share depending upon when her trade executed.
D) equal to the average prices paid by the specialist during that trading day.
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
38
40) Which of the following statements concerning day traders are correct?
I. Day traders generally do not hold securities over night.
II. Day trading is a relatively low risk approach to investing.
III. Some day traders sell stocks short.
IV. Day trading was declared illegal by the Market Stabilization Act of 2002.
A) I and II only
B) I and III only
C) I, II and IV only
D) II, 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
41) The Securities Investor Protection Corporation insures individual investors against
A) the loss of up to $500,000 in securities or $100,000 in cash held by a broker.
B) market losses of $500,000 total or $100,000 per transaction.
C) losses of up to $100,000 incurred due to innocent online trading errors.
D) losses incurred up to $500,000 due to churning by a 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 5
39
42) In which of the following cases might an investor receive help from The Securities Investor
Protection Corporation?
A) The investor purchased a stock at $40 per share because his broker recommended it. Over
the next six months, it fell to $20 per share.
B) The investor purchases stock in a company that shortly later was forced into bankruptcy
because of accounting fraud.
C) The investor holds $100,000 worth of stock in certificate form. The certificates are
destroyed in a fire.
D) A broker took money sent by investors to cover stock purchases, but never invested it and
sent falsified statements to cover the fraud.
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
43) An informal, voluntary agreement to solve disputes between an investor and his/her broker
by utilizing a person to facilitate negotiations between the two parties is called
A) voluntary arbitration.
B) binding arbitration.
C) mediation.
D) litigation.
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
44) Describe several appropriate uses of stop-loss orders.
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
40
45) When is it appropriate to use limit orders?
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
3.6 Learning Goal 6
1) Chartered Financial Analysts and Certified Financial Planners must pass a rigorous series of
exams, as well as meet educational and experience requirements.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 6
2) A person can become a Certified Financial Planner merely by filling out an application and
paying an annual fee.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 6
3) Investment clubs are legal partnerships.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 6
41
4) Investment clubs may only operate under the guidance of a registered investment advisor.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: New Question
Learning Goal: Learning Goal 6
5) Investment advisors are legally responsible for losses incurred by 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 6
6) Which of the following designations does NOT have formal education and testing
requirements?
A) Chartered Financial Analyst
B) Certified Financial Planner
C) Registered Investment Adviser
D) Certified Public Accountant
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 6
7) Recent studies suggest that, on average, investments clubs
A) outperform broad market indexes by several percentage points.
B) underperform broad market indexes by a several percentage points.
C) earn average rates of return.
D) no data is available on investment club performance.
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 6
42
8) Which of the following is required by the Investment Advisers Act to disclose their
background and any conflicts of interest?
A) professional investment advisers
B) accountants and lawyers
C) stockbrokers
D) all of the above
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 6
9) Which of the following are advantages of investment clubs?
I. Small investors can pool their money to build a portfolio.
II. Members can share research responsibilities.
III. Individual members may have different goals and tolerance levels for risk.
IV. Investment clubs typically buy stocks for the long term rather than short term profits.
A) I and III only.
B) III and IV only.
C) I, II and IV only
D) I, II, III and IV
managers
AACSB: 8 Application of knowledge (Able to translate knowledge of business and management
into practice)
Question Status: Previous Edition
Learning Goal: Learning Goal 6