1. In the event of a company's bankruptcy, _______________.
   1. the firm's bondholders are individually liable for the firm's obligations
   2. shareholders' maximum loss is their original investment plus legal costs
   3. bondholders have a claim to what remains from the liquidation of the firm's assets after paying shareholders' claims
   4. common shareholders are last in line to receive their claims on the firm's assets

2. A bond that has no collateral is called a _______________.
   1. debenture
   2. zero-coupon bond
   3. callable bond
   4. convertible bond

3. Which of the following is characteristic of common stock as an investment?
   1. Capital security
   2. Unlimited liability
   3. Residual claimant
   4. Assured dividends

4. What are the characteristics of money market securities?
   1. Short maturity, low liquidity and high credit risk
   2. Short maturity, low liquidity and low credit risk
   3. Short maturity, high liquidity and high credit risk
   4. Short maturity, high liquidity and low credit risk

5. A bond denominated in a currency other than that of the country in which it is issued is known as a _______________.
   1. swap
   2. Yankee bond
   3. Eurobond
   4. debenture

6. Investors purchase Treasury bills at a _______________ from the stated maturity value and receive a payment equal to the _______________ of the bill at maturity.
   1. discount; face value
   2. premium; face value plus interest
   3. discount; face value plus interest
   4. premium; face value

7. Which of the following tells us how much stock purchasers must pay per dollar of earnings the firm generates for each share?
   1. EBITDA
   2. Dividend yield
   3. Earnings per share
   4. P/E ratio

8. Which of the following observations describes a mortgage-backed security?
   1. Mortgage lenders originate loans and then sell packages of these loans in the primary market.
   2. Issuers of mortgage-backed securities buy their claim to the cash outflows from the mortgages as loans are paid off.
   3. It is an ownership claim in a pool of mortgages or an obligation that is secured by such a pool.
   4. Investors cannot buy and sell securitized mortgages like other bonds.

9. A limit buy order is an order to buy stock that is executed _______________.
   1. immediately at the best available price
   2. immediately, at the last traded price
   3. at the lowest available price
   4. when the stock can be obtained at or below a specified price

10. An over-the-counter market is an example of _______________.
    1. an auction market
    2. a dealer market
    3. a brokered market
    4. a direct search market

11. Which of the following statements is true of specialists on the NYSE?
    1. Specialists are not obligated to provide price continuity to the market.
    2. Specialists strive to maintain a broad bidask spread.
    3. When matching trades, a specialist must use the highest offered purchase price and the lowest offered selling price.
    4. Specialists are prohibited from buying or selling stock for their own portfolios.

12. An investor sells short 200 shares of stock at $15 per share. The initial margin requirement is 60%. The investor earns no interest on funds in the margin account and no dividends are paid. What is the investor's rate of return after one year if the short sale is covered at $12 per share?
    1. 33.3%
    2. -20.0%
    3. 20.0%
    4. -33.3%
13. Which of the following statements is true about initial public offerings?
    1. An IPO is a secondary market transaction in the stock of a company that was formerly privately owned.
    2. Explicit costs of an IPO tend to be roughly 2% of the funds raised.
    3. IPOs have been shown to be poor long-term investments.
    4. Almost all IPOs turn out to be overpriced.

14. You sold short ABC stock at $50 per share. The current market price of the stock is $53. The most effective way to limit your potential losses is to place a _______________.
    1. limit-buy order
    2. stop-buy order
    3. limit-sell order
    4. stop-loss order

15. A _______________ broker provides "no frills" services.
    1. floor
    2. discount
    3. full-service
    4. discretionary

16. Which of the following observations concerning private placements is true?
    1. They are made available to the general public.
    2. They generally will be more suited for very large offerings.
    3. They are characterized by high post-issue liquidity.
    4. They do not trade in secondary markets like stock exchanges.

17. You sold short 200 shares of XYZ common stock at $40 per share. The initial margin requirement was 60%. Your initial investment was _______________.
    1. $3,200
    2. $4,800
    3. $6,000
    4. $8,000

18. Suppose you purchase 400 shares of MLP common stock on margin at $25 per share. The initial margin is 60% and the maintenance margin is 30%. You will get a margin call if the stock price falls below _______________. (Assume the stock pays no dividends and ignore interest on the margin loan.)
    1. $7.50
    2. $16.72
    3. $21.43
    4. $14.29

19. You are bullish on Norton, Inc., common stock which currently has a market price of $30 per share. You decide to invest $8,000 of your own money and you borrow $7,000 from your broker in order to buy 500 shares of Norton stock. The broker charges 10% interest on the loan. In one year, you sell the stock for $35. Your rate of return was:
    1. 16.7%.
    2. 22.5%.
    3. 31.3%.
    4. 12.0%.

20. Which of the following statements is true about bond trading?
    1. Most trading of bonds on the New York Stock Exchange represents primary market transactions.
    2. Corporate bond trading is very active, although not as active as trading in common stock.
    3. In order for a company to list its bonds on the New York Stock Exchange bond trading system, each bond must be registered with the exchange.

D) The majority of bond trading occurs in the over-the-counter market.