Knowledge Flashcards

Under Regulation T, the Federal Reserve sets the initial margin requirement for equity purchases at:

Answer: 50%

Regulation T requires investors to deposit at least 50% of the purchase price when buying securities on margin.

Which of the following best describes a 'bear market'?

Answer: A market declining 20% or more from recent highs

A bear market is generally defined as a broad market decline of 20% or more from recent highs over a sustained period.

An investor who sells borrowed shares hoping to buy them back at a lower price is engaged in:

Answer: Short selling

Short selling involves borrowing and selling shares with the intent to repurchase them at a lower price and return them to the lender for a profit.

Which document must be provided to customers before or during the opening of an options account?

Answer: Options Disclosure Document (ODD)

The Options Disclosure Document (ODD), titled 'Characteristics and Risks of Standardized Options,' must be delivered to options account customers.

Treasury Inflation-Protected Securities (TIPS) protect investors against inflation because their:

Answer: Principal adjusts with changes in the Consumer Price Index

TIPS have their principal value adjusted based on changes in the CPI, so the interest paid and maturity value rise with inflation.

Which of the following is NOT a characteristic of common stock?

Answer: Guaranteed dividend payments

Common stockholders are not guaranteed dividends; dividends are paid at the discretion of the board of directors.

The 'ask' price in a securities quotation represents:

Answer: The price the dealer will sell the security to investors

The ask (or offer) price is the price at which a dealer is willing to sell a security to a buyer.