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Chapter 02
The Investment Process
4. A Roth IRA:
A. is a form of "tax-deferred" account
B. funds are taxed at the time you begin withdrawals
C. are well-suited to investors nearing retirement
D. invests after-tax dollars
E. is the type of account offered by most employers
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5. A brokerage account in which purchases can be made using credit is referred to as which
type of account?
A. clearing
B. funds available
C. cash
D. call
E. margin
6. Kate just purchased $7,000 worth of stock. She paid $5,000 in cash and borrowed $2,000.
In this example, the term margin refers to:
A. the total amount of the purchase.
B. the percentage of the purchase that was paid in cash.
C. the percentage of the purchase paid with borrowed funds.
D. any future increase in the value of the stock.
E. any future decrease in the value of the stock.
7. Which one of the following best describes the term "initial margin"?
A. Amount of money that must be deposited to open a margin account with a broker
B. Amount of cash that must be paid to purchase a security on margin
C. Amount of cash that must be paid when a broker issues a margin call
D. Amount of money borrowed when a security is purchased
E. Total loan amount offered to a customer by a brokerage firm to cover future purchases
8. The minimum equity that must be maintained at all times in a margin account is called the:
A. initial margin.
B. initial equity position.
C. maintenance margin.
D. call requirement.
E. margin call.
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Chapter 02 - The Investment Process
9. When your equity position in a security is less than the required amount, your brokerage
firm will issue a:
A. margin call.
B. margin certificate.
C. cash certificate.
D. limit order.
E. leverage call.
10. Stuart purchased 300 shares of Microsoft stock which he has pledged to his broker as
collateral
for the loan in his margin account. This process of pledging securities is called:
A. margin calling.
B. hypothecation.
C. leveraging.
D. maintaining the margin.
E. street securitization.
11. Staci owns 1,000 shares of stock in a margin account. Those shares are most likely held
in:
A. transit.
B. her registered name.
C. street name.
D. a wrap account.
E. a discretionary account.
12. This morning, Josh sold 800 shares of stock that he did not own. This sale is referred to as
a:
A. margin sale.
B. long position.
C. wrap trade.
D. hypothecated sale.
E. short sale.
2-3
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