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41) An investor with a long position in a security will make money:
A) if the price of the security increases.
B) if the price of the security declines.
C) if the price of the security remains stable.
D) only if the security has been purchased on margin.
E) only by shorting the security.
42) Which one of the following describes a short position?
A) Purchasing a security on margin
B) Selling a security that you originally purchased on margin
C) Loaning a security to your broker to cover a margin call
D) Having less equity than required in your margin account
E) Selling a security that you do not own
43) On August 8 of this year, Brent sold 500 shares of ADO stock for $24 a share. On September
6 of this year, he purchased 500 shares of ADO stock to cover his position. The transaction on
August 8:
A) was a short sale.
B) was a margin trade.
C) was a wrap transaction.
D) created a long transaction.
E) was a pooling transaction.
44) A short sale:
A) creates a long position in a stock.
B) involves the borrowing of securities.
C) is the purchase of less than 100 shares of a stock.
D) is a bullish outlook towards a security.
E) is the resale of a security within four hours of purchase.
45) If you benefit when a security decreases in value, you have a ________ position in the
security.
A) long
B) margined
C) short
D) covered
E) wrapped
46) The maximum loss you can incur on a short sale is:
A) limited to your initial equity.
B) limited to your initial margin.
C) limited to the margin loan plus interest.
D) zero.
E) unlimited.
47) What is the maximum loss you can incur if you have a long position on a stock in a cash
account?
A) The initial investment
B) The initial margin
C) The margin loan plus interest
D) Zero
E) Unlimited
48) Tate Industries stock is selling for $20 a share. You would like to purchase as many shares of
this stock as you can. Your margin account currently has available cash of $4,500 and the initial
margin requirement is 75 percent. What is the maximum number of shares you can buy?
A) 193 shares
B) 287 shares
C) 300 shares
D) 360 shares
E) 408 shares
49) Todd has a margin account with $17,400 in available cash. The initial margin is 70 percent
and the maintenance margin is 30 percent. What is the maximum number of shares he can
purchase if the price per share is $44?
A) 395 shares
B) 564 shares
C) 698 shares
D) 744 shares
E) 842 shares
50) Theresa has a margin account with a 60 percent initial margin requirement and a 35 percent
maintenance margin. What is the maximum dollar amount of stock she can purchase if her cash
balance in the account is $35,300?
A) $19,140.00
B) $31,900.00
C) $44,093.33
D) $58,833.33
E) $91,142.86
51) You recently purchased 800 shares of Southern Timber stock for $35 a share. Your broker
required a cash payment of $19,600, plus trading costs, for this purchase. What was the initial
margin requirement?
A) 60 percent
B) 65 percent
C) 70 percent
D) 75 percent
E) 80 percent
52) Donna recently purchased 500 shares of Deltona stock for $33.00 a share. Her broker
required a cash payment of $10,725, plus trading costs, for the purchase. What is the initial
margin requirement on this particular stock?
A) 60 percent
B) 65 percent
C) 75 percent
D) 80 percent
E) 90 percent
53) Suzette recently purchased 300 shares of Nu Electronics stock for $4.40 a share. Her broker
required a cash payment of $1,320, plus trading costs, for the purchase. What is the initial margin
requirement on this stock?
A) 70 percent
B) 75 percent
C) 80 percent
D) 90 percent
E) 100 percent
54) Stephen is purchasing 700 shares of KPT, Inc., stock at a price per share of $20.80. What is
the minimum amount the Federal Reserve will require Stephen to pay in cash for this purchase?
A) $4,488
B) $7,280
C) $9,800
D) $10,968
E) $11,960
55) Alfonso purchased 600 shares of Crosswinds, Inc., stock on 60 percent margin when the
stock was selling for $37 a share. The stock is currently selling for $32 a share. What is his
current equity position?
A) $7,680
B) $8,880
C) $9,600
D) $10,320
E) $11,560
56) You purchased 1,000 shares of stock at $42 a share. The stock is currently selling for $45 a
share. The initial margin was 70 percent and the maintenance margin is 30 percent. What is your
current margin position?
A) 28.36 percent
B) 25.00 percent
C) 75.00 percent
D) 63.59 percent
E) 72.00 percent
57) You own 500 shares of a stock that you purchased on margin at a price per share of $20.12.
The stock is currently valued at $24 a share. Your broker advised you today that your minimum
equity position for this purchase is $4,800 as of today. What is the maintenance margin
percentage?
A) 25 percent
B) 30 percent
C) 35 percent
D) 40 percent
E) 50 percent
58) Sun Lee purchased 1,500 shares of Franklin Metals stock for $16.80 a share. The stock was
purchased with an initial margin of 65 percent. The maintenance margin is 30 percent. The stock
is currently selling for $17.10 a share. What is the minimum dollar amount of equity that he must
have in this stock today to avoid a margin call?
A) $7,544
B) $7,695
C) $7,760
D) $7,808
E) $7,973
59) Rosita purchased 300 shares of a stock for $37 a share. Today, the stock is selling for $41 a
share. The initial margin requirement is 70 percent and the maintenance margin is 30 percent.
Rosita had to pay ________ in cash to purchase the stock and must have at least ________ in
equity today.
A) $3,690; $3,330
B) $3,690; $3,690
C) $7,770; $3,330
D) $7,770; $3,690
E) $8,610; $3,690
60) Allan purchased 500 shares of stock on margin for $31.75 a share and sold the shares five
months later for $34.50 a share. The initial margin requirement was 65 percent and the
maintenance margin was 30 percent. The interest rate on the margin loan was 8.5 percent. He
received no dividend income. What was his holding period return?
A) 7.05 percent
B) 8.45 percent
C) 9.88 percent
D) 10.76 percent
E) 11.46 percent
61) Tony purchased 100 shares of T-Rex stock for $43 a share. On the same day, Sam also
purchased 100 shares of T-Rex stock for $43 a share. Tony paid cash for his purchase while Sam
used margin. The initial margin requirement on this stock is 60 percent while the maintenance
margin is 40 percent. Both Tony and Sam sold their shares after eight months at a price of $40 a
share. The stock pays no dividends. Tony had a holding period percentage return of ________
percent as compared to Sam's ________ percent return. Ignore margin interest and trading costs.
A) -4.19; -6.98
B) -4.19; -11.63
C) -6.98; -4.19
D) -6.98; -11.63
E) -11.63; -7.56
62) Stacy purchased 400 shares of stock for $38 a share. She sold those shares six months later
for $34 a share. The initial margin requirement is 80 percent and the maintenance margin is 40
percent. Ignore margin interest and trading costs. If she purchased the shares for cash her holding
period return would be ________ percent as compared to ________ percent if she had used
margin.
A) -10.12; -12.84
B) -10.53; -13.16
C) -11.63; -14.30
D) -11.63; -14.54
E) -12.27; -15.82
63) A stock was purchased for $45 a share and sold ten months later for $48 a share. If the shares
were purchased totally with cash the holding period return would be ________ percent as
compared to ________ percent if the purchase was made using 70 percent margin. Ignore trading
costs and margin interest.
A) 5.56; 3.89
B) 5.56; 7.94
C) 5.88; 4.12
D) 5.88; 6.69
E) 5.88; 8.40
64) You purchased a stock for $18.45 a share using 70 percent margin. You sold the stock seven
months later for $19.85 a share. You did not receive any dividend income. What was your
holding period percentage return on this investment? Ignore trading costs and margin interest.
A) 8.77 percent
B) 9.12 percent
C) 10.84 percent
D) 11.75 percent
E) 12.13 percent
65) Rudolfo purchased 900 shares of stock for $62.20 a share and sold them ten months later for
$64.60 a share. The initial margin requirement on this stock is 75 percent and the maintenance
margin is 40 percent. Ignoring dividends and costs, what is his holding period return?
A) 3.72 percent
B) 3.86 percent
C) 4.54 percent
D) 4.95 percent
E) 5.14 percent
66) Mary purchased 100 shares of Best Foods stock on margin at a price of $49 a share. The
initial margin requirement is 65 percent and the maintenance margin is 30 percent. What is the
lowest the stock price can go before Mary receives a margin call?
A) $17.00
B) $24.50
C) $28.00
D) $30.00
E) $33.00
67) You purchased 800 shares of stock for $49.20 a share. The initial margin requirement is 65
percent and the maintenance margin is 35 percent. What is the lowest the stock price can go
before you receive a margin call?
A) $9.27
B) $14.54
C) $17.22
D) $21.88
E) $26.49
68) Aaron purchased 300 shares of a technology stock for $16.80 a share. The initial margin
requirement on this stock is 85 percent and the maintenance margin is 60 percent. What is the
lowest the stock price can go before he receives a margin call?
A) $4.43
B) $5.55
C) $6.30
D) $8.33
E) $10.03
69) You purchased 500 shares of stock for $28.50 a share. The initial margin requirement is 65
percent and the maintenance margin is 35 percent. What is the maximum percentage decrease
that can occur in the stock price before you receive a margin call?
A) 35 percent
B) 38 percent
C) 46 percent
D) 57 percent
E) 62 percent
70) Nelson purchased 1,600 shares of stock for $18.75 a share. The initial margin requirement is
70 percent and the maintenance margin is 40 percent. What is the maximum percent by which
the stock price can decline before he receives a margin call?
A) 30 percent
B) 45 percent
C) 50 percent
D) 65 percent
E) 70 percent
71) You purchase 500 shares of stock on margin at a cost per share of $22. The initial margin
requirement is 60 percent. The effective interest rate on the margin loan is 6.4 percent. How
much interest will you pay if you repay the loan in four months?
A) $68.77
B) $91.93
C) $102.16
D) $112.38
E) $117.04
72) Sarah purchased 600 shares of Detroit Motors stock at a price of $60 a share. The initial
margin requirement is 70 percent and the maintenance margin is 30 percent. The effective
interest rate on the margin loan is 6.5 percent. How much margin interest will she pay if she
repays the loan in seven months?
A) $387.29
B) $404.12
C) $417.29
D) $530.42
E) $647.96
73) Today, you are purchasing 100 shares of stock on margin. The purchase price per share is
$35. The initial margin requirement is 70 percent and the maintenance margin is 30 percent. The
call money rate is 4.5 percent and you are charged 1.6 percent over that rate. What will your rate
of return be if you sell your shares one year from now for $37 a share? Ignore dividends.
A) 5.55 percent
B) 6.42 percent
C) 7.18 percent
D) 7.49 percent
E) 8.03 percent
74) Seven months ago, you purchased 400 shares of stock on margin. The initial margin
requirement on your account is 60 percent and the maintenance margin is 30 percent. The call
money rate is 4.8 percent and you pay 1.85 percent above that rate. The purchase price was $16 a
share. Today, you sold these shares for $18.00 each. What is your annualized rate of return?
A) 26.15 percent
B) 33.35 percent
C) 42.77 percent
D) 56.87 percent
E) 64.64 percent
