Quiz-summary
0 of 10 questions completed
Questions:
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
Information
Certdemy Free Practice Questions
You have already completed the quiz before. Hence you can not start it again.
Quiz is loading...
You must sign in or sign up to start the quiz.
You have to finish following quiz, to start this quiz:
Results
0 of 10 questions answered correctly
Your time:
Time has elapsed
You have reached 0 of 0 points, (0)
Categories
- Not categorized 0%
- 1
- 2
- 3
- 4
- 5
- 6
- 7
- 8
- 9
- 10
- Answered
- Review
-
Question 1 of 10
1. Question
Which of the following statements is true regarding market order, limit order, and stop order?
I. There are many tools at an investor’s disposal when trading securities
II.Limit orders help investors time their transactions according to market movements without having to constantly watch the security for the right price
III. A limit order will execute a buy or sell if the price reaches the desired level but will not execute if the price fluctuates past the desired level
IV. Stop orders, unlike limit orders, don’t help the investor with timingCorrect
Market order, limit order, and stop order
There are many tools at an investor’s disposal when trading securities. If an investor desires to trade immediately at the current level of the market, he or she will place a market order and accept the next price for which they can buy or sell the desired security. No restrictions are placed on market orders. Limit orders help investors time their transactions according to market movements without having to constantly watch the security for the right price. A limit order will execute a buy or sell if the price reaches the desired level but will not execute if the price fluctuates past the desired levels. Stop orders, similar to limit orders, help the investor with timing. The stop level is essentially a trigger point in the securities price. Unlike a limit, however, once desired level is reached, the very next price will be accepted regardless of the next price.Incorrect
Market order, limit order, and stop order
There are many tools at an investor’s disposal when trading securities. If an investor desires to trade immediately at the current level of the market, he or she will place a market order and accept the next price for which they can buy or sell the desired security. No restrictions are placed on market orders. Limit orders help investors time their transactions according to market movements without having to constantly watch the security for the right price. A limit order will execute a buy or sell if the price reaches the desired level but will not execute if the price fluctuates past the desired levels. Stop orders, similar to limit orders, help the investor with timing. The stop level is essentially a trigger point in the securities price. Unlike a limit, however, once desired level is reached, the very next price will be accepted regardless of the next price. -
Question 2 of 10
2. Question
Which of the following statements is true regarding cash accounts and margin accounts?
I. Cash accounts are the most common types of brokerage accounts which are used by most investors for their simplicity and low risk as an account type
II. Cash accounts are acceptable accounts for all investor types. Gains in cash accounts are limited by the amount of capital available to the investor
III. Margin accounts are accounts whereby employees have access to loanable funds, or leverage
IV. The loanable funds are used to reduce gains and don’t have the potential to magnify lossesCorrect
Cash accounts and margin accounts
Cash accounts are the most common types of brokerage accounts. They are used by most investors for their simplicity and low risk as an account type. Cash accounts are acceptable accounts for all investor types. Gains in cash accounts are limited by the amount of capital available to the investor. Margin accounts are accounts whereby investors have access to loanable funds, or leverage. The loanable funds are used to magnify gains but have the potential to magnify losses. Investors have the potential to increase the gain in margin accounts by borrowing extra capital to invest and paying it back from the extra gains earned from the extra capital invested. This process works in reverse with losses in margin accounts, increasing the potential for losses.Incorrect
Cash accounts and margin accounts
Cash accounts are the most common types of brokerage accounts. They are used by most investors for their simplicity and low risk as an account type. Cash accounts are acceptable accounts for all investor types. Gains in cash accounts are limited by the amount of capital available to the investor. Margin accounts are accounts whereby investors have access to loanable funds, or leverage. The loanable funds are used to magnify gains but have the potential to magnify losses. Investors have the potential to increase the gain in margin accounts by borrowing extra capital to invest and paying it back from the extra gains earned from the extra capital invested. This process works in reverse with losses in margin accounts, increasing the potential for losses. -
Question 3 of 10
3. Question
Which of the following statements is true regarding commissions allowed on securities transactions?
I. Commissions are monies collected from a broker or agent to facilitate a trade on the behalf of another investor, usually a big retail broker
II. Commissions present the advisor with an ethical minefield to navigate
III. Churning is the practice of making multiple and unnecessary trades in a client’s account for the sole purpose of generating commissions
IV. Collecting reasonable commissions is a perfectly legal and ethical manner of transacting business. Unreasonable commissions, however, are notCorrect
Commissions allowed on securities transactions
Commissions are monies paid to a broker or agent to facilitate a trade on the behalf of another investor, usually a small retail investor. Commissions present the advisor with an ethical minefield to navigate. One example of unethical practices concerning commissions is a practice known as churning. Churning is the practice of making multiple and unnecessary trades in a client’s account for the sole purpose of generating commissions. Collecting reasonable commissions is a perfectly legal and ethical manner of transacting business. Unreasonable commissions, however, are not.Incorrect
Commissions allowed on securities transactions
Commissions are monies paid to a broker or agent to facilitate a trade on the behalf of another investor, usually a small retail investor. Commissions present the advisor with an ethical minefield to navigate. One example of unethical practices concerning commissions is a practice known as churning. Churning is the practice of making multiple and unnecessary trades in a client’s account for the sole purpose of generating commissions. Collecting reasonable commissions is a perfectly legal and ethical manner of transacting business. Unreasonable commissions, however, are not. -
Question 4 of 10
4. Question
Which of the following statements is true regarding forward contract and futures contract?
I. Two general categories of contracts exist in futures trading which are forward (or cash) contract, and futures contracts
II. Both are legally binding agreements to buy or sell some commodity or financial instrument in the future
III. Futures contracts have the obvious benefit in that they are more liquid because they are standardized
IV. Liquidity of a commodity is a characteristic that denies large transactions to occur with a significant impact on the price of that commodityCorrect
Forward contract and futures contract
Two general categories of contracts exist in futures trading. They are forward (or cash) contract, and futures contracts. Both are legally binding agreements to buy or sell some commodity or financial instrument in the future. However, forward contracts are not standardized. They are privately negotiated contracts between buyer and seller. Futures contracts are standardized in terms of quality, quantity, delivery time, and location. Futures contracts have the obvious benefit in that they are more liquid because they are standardized. Liquidity of a commodity is a characteristic that allows large transactions to occur without a significant impact on the price of that commodity.Incorrect
Forward contract and futures contract
Two general categories of contracts exist in futures trading. They are forward (or cash) contract, and futures contracts. Both are legally binding agreements to buy or sell some commodity or financial instrument in the future. However, forward contracts are not standardized. They are privately negotiated contracts between buyer and seller. Futures contracts are standardized in terms of quality, quantity, delivery time, and location. Futures contracts have the obvious benefit in that they are more liquid because they are standardized. Liquidity of a commodity is a characteristic that allows large transactions to occur without a significant impact on the price of that commodity. -
Question 5 of 10
5. Question
Which of the following statements is true regarding Options?
I. Options contracts are contracts between only two companies based on the right or requirement to buy or sell a certain security
II. More advanced options contracts are some combination of the two surrounding a strike price
III. A covered call can produce safe income for a retiree, whereas an investor who wishes to speculate on the price of an investment may purchase a straddle
IV. The value of a straddle is realized when the price of the security experiences large amounts of volatility in either directionCorrect
Options
Options contracts are contracts between two or more investors based on the right or requirement to buy or sell a certain security that underlies the contract. The most basic types of options are calls and puts. More advanced options contracts are some combination of the two surrounding a strike price. Options are used for many reasons. A covered call can produce risk-free income for a retiree, whereas an investor who wishes to speculate on the price of an investment may purchase a straddle. The retiree selling the covered call receives the premium paid for the call and experiences no risk associated with the income because he or she owns the underlying security. The value of a straddle is realized when the price of the security experiences large amounts of volatility in either direction.Incorrect
Options
Options contracts are contracts between two or more investors based on the right or requirement to buy or sell a certain security that underlies the contract. The most basic types of options are calls and puts. More advanced options contracts are some combination of the two surrounding a strike price. Options are used for many reasons. A covered call can produce risk-free income for a retiree, whereas an investor who wishes to speculate on the price of an investment may purchase a straddle. The retiree selling the covered call receives the premium paid for the call and experiences no risk associated with the income because he or she owns the underlying security. The value of a straddle is realized when the price of the security experiences large amounts of volatility in either direction. -
Question 6 of 10
6. Question
Which of the following statements is true trade as a principal and trade as an agent?
Correct
Trade as a principal and trade as an agent
A trader selling securities from his or her own inventory and acting on his or her own behalf is acting as a dealer in the role of a principal. A principal or dealer’s profit motive is satisfied by the capital gains and trading fees he or she may acquire due to the transactions between the principal and the principal’s clients. A trader acting on behalf of a client or dealer is known as a broker, acting in the role of an agent. The broker may be an agent either for a dealer or for a client. A broker’s profit motive is satisfied by the commission he or she earns as a result of the sale and through fees charged. Principals act on their own behalf; agents act on the behalf of others.Incorrect
Trade as a principal and trade as an agent
A trader selling securities from his or her own inventory and acting on his or her own behalf is acting as a dealer in the role of a principal. A principal or dealer’s profit motive is satisfied by the capital gains and trading fees he or she may acquire due to the transactions between the principal and the principal’s clients. A trader acting on behalf of a client or dealer is known as a broker, acting in the role of an agent. The broker may be an agent either for a dealer or for a client. A broker’s profit motive is satisfied by the commission he or she earns as a result of the sale and through fees charged. Principals act on their own behalf; agents act on the behalf of others. -
Question 7 of 10
7. Question
Which of the following statements is true holding period return?
Correct
Holding period return
Holding period return describes the return that an asset or portfolio experiences during the length of time the investor held the investments. All dividends, interest, and capital gains received during that period of time are included in the return calculation. This provides the investor with an accurate view of the performance of the security. Holding period return is essentially a calculation of total return but as related to a specific holding period, whereas total return is measured annually. Given this fact, holding period return is not annualized. Nonannualized returns are often difficult to compare to other returns. This should be remembered when using the holding period return method of performance evaluation.Incorrect
Holding period return
Holding period return describes the return that an asset or portfolio experiences during the length of time the investor held the investments. All dividends, interest, and capital gains received during that period of time are included in the return calculation. This provides the investor with an accurate view of the performance of the security. Holding period return is essentially a calculation of total return but as related to a specific holding period, whereas total return is measured annually. Given this fact, holding period return is not annualized. Nonannualized returns are often difficult to compare to other returns. This should be remembered when using the holding period return method of performance evaluation. -
Question 8 of 10
8. Question
Which of the following statements is false internal rate of return?
Correct
Internal rate of return
Internal rates of return are discount rates by which investors determine the viability of taking on new investments. Internal rates of return take many factors into consideration, especially the time value of money. If the internal rate of return is calculated to be positive and higher than the rate that the investor requires from an investment, the investor accepts the investment. The internal rate of return calculation is most applicable to the bond market as there are regular cash flows to measure and compare with a set maturity. Investors find these measurements helpful in determining the proper course when presented with two seemingly identical investments.Incorrect
Internal rate of return
Internal rates of return are discount rates by which investors determine the viability of taking on new investments. Internal rates of return take many factors into consideration, especially the time value of money. If the internal rate of return is calculated to be positive and higher than the rate that the investor requires from an investment, the investor accepts the investment. The internal rate of return calculation is most applicable to the bond market as there are regular cash flows to measure and compare with a set maturity. Investors find these measurements helpful in determining the proper course when presented with two seemingly identical investments. -
Question 9 of 10
9. Question
Which of the following statements is true expected return?
Correct
Expected return
Expected rates of return are not based upon empirical data, as are historical returns or actual rates of return. Expected returns are the estimates of return that an investor expects to receive from an asset based on the probability of that asset returning several different rates. Expected rates of return help the investor identify which securities are worth the capital outlay based on the expected rate of return versus differing levels of risk. The most basic function of expected return is to assess if an investment will produce positive or negative results. Expected rates of return should not be the sole consideration when determining suitable investments.Incorrect
Expected return
Expected rates of return are not based upon empirical data, as are historical returns or actual rates of return. Expected returns are the estimates of return that an investor expects to receive from an asset based on the probability of that asset returning several different rates. Expected rates of return help the investor identify which securities are worth the capital outlay based on the expected rate of return versus differing levels of risk. The most basic function of expected return is to assess if an investment will produce positive or negative results. Expected rates of return should not be the sole consideration when determining suitable investments. -
Question 10 of 10
10. Question
Which of the following statements is true yield-to-maturity?
Correct
Yield-to-maturity
Yield-to-maturity measures the yield that would be gained if a bond or other fixed income security were held by an investor until the date at which it matured. Yield-to-maturity is calculated using the par value of the security, the current market price, time to maturity, and coupon interest rate paid. If a bond is purchased at a discount, the yield-to-maturity is greater than the current yield or coupon of the bond. If the bond was purchased at a premium, yield-to-maturity would be less than the current yield or coupon. Yield-to- maturity is important to investors seeking current income as it helps them determine if the income that they will receive from a certain security is worth the capital outlay. A bond paying a high coupon that is purchased at a high premium may actually yield less than a bond that sells at a discount but pays a lower coupon.Incorrect
Yield-to-maturity
Yield-to-maturity measures the yield that would be gained if a bond or other fixed income security were held by an investor until the date at which it matured. Yield-to-maturity is calculated using the par value of the security, the current market price, time to maturity, and coupon interest rate paid. If a bond is purchased at a discount, the yield-to-maturity is greater than the current yield or coupon of the bond. If the bond was purchased at a premium, yield-to-maturity would be less than the current yield or coupon. Yield-to- maturity is important to investors seeking current income as it helps them determine if the income that they will receive from a certain security is worth the capital outlay. A bond paying a high coupon that is purchased at a high premium may actually yield less than a bond that sells at a discount but pays a lower coupon.