1. A trader buys 500 shares of a stock on margin at $36 a share using an initial leverage ratio of
1.66. The maintenance margin requirement for the position is 30 percent. The stock price at which the margin call will occur is closest to:
A. $20.57
B. $25.20
C. $30.8
2. Which of the following financial intermediaries are most likely to provide liquidity service to their clients?
A. Dealers
B. Brokers
C. Exchanges
3. A trader places a limit order to buy shares at a price of $49.94 with the stock trading at a market bid price of $49.49 and the bid-ask spread of 0.7%. The order will most likely be filled at:
A. $49.49
B. $49.84
C. $49.94
4. After the public announcement of the merger of two firms an investor makes abnormal returns by going long on the target firm and short on the acquiring firm. This most likely violates which form of market efficiency?
A. Semi-strong form only
B. Weak and semi-strong forms
C. Semi-strong and strong forms
5. An analyst gathers the following information about two companies in the same industry:
Company A Company B
Book value per share $20 $10
Market price per share $22 $13
Return on equity 16% 13%
Retention ratio 40% 60%
What is the most appropriate conclusion regarding investors’ expectations? Compared to
Company B, Company A has:
A. higher intrinsic value as reflected by its higher market price.
B. higher sustainable growth as reflected by its higher return on equity.
C. lower future investment opportunities due to its lower price-to-book ratio.
6. An investor gathers the following data about a company:
Most recent year’s dividend per share $1.47
Next year’s estimate of earnings per share $4.00
Estimate of long-run return on equity (ROE) 15%
Estimate of long-run dividend payout ratio 40%
Investors’ required rate of return 12%
The company’s justified forward P/E is closest to:
A. 10.0
B. 13.3
C. 20.0