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Chapter 1: Q3WM. (page 25)

Now visit the website of the NASD, www.finra.org. What is its mission? What information and advice does it offer to beginners?

Short Answer

Expert verified

Mission - To ensure that everyone can participate in the market with confidence

Advice- To educate themselves, align their finances with reasonable investments, research their company’s stocks, check out their brokers and advisors and know how to file complaint.

Step by step solution

01

Definition

By logging into www.finra.org, one can gain access to the website of FINRA and browse through a host of information related to safeguarding of investment .

02

Explanation

FINRA is a government authorized not for profit organization that oversees US broker relations.

Its mission is to ensure that everyone can participate in the market with confidence.

FINRA offers information, runs learning courses and advises the beginning investors to educate themselves, align their finances with reasonable investments, research their company’s stocks, check out their brokers and advisors and know how to file complaint, if need arises.

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Most popular questions from this chapter

What is the difference between an IPO (initial public offering) and an SEO (seasoned equity offering)?

Suppose that you sell short 500 shares of Intel, currently selling for \(40 per share, and give your broker \)15,000 to establish your margin account.

a. If you earn no interest on the funds in your margin account, what will be your rate of return after one year if Intel stock is selling at (i) \(44; (ii) \)40; (iii) \(36? Assume that Intel pays no dividends.

b. If the maintenance margin is 25%, how high can Intel’s price rise before you get a margin call?

c. Redo parts ( a ) and ( b ), but now assume that Intel also has paid a year-end dividend of \)1 per share. The prices in part ( a ) should be interpreted as ex-dividend, that is, prices after the dividend has been paid.

What options position is associated with:

a. The right to buy an asset at a specified price?

b. The right to sell an asset at a specified price?

c. The obligation to buy an asset at a specified price?

d. The obligation to sell an asset at a specified price?

Suppose that Intel currently is selling at \(40 per share. You buy 500 shares using \)15,000 of your own money, borrowing the remainder of the purchase price from your broker. The rate on the margin loan is 8%.

a. What is the percentage increase in the net worth of your brokerage account if the price of Intel immediately changes to (i) \(44; (ii) \)40; (iii) \(36? What is the relationship between your percentage return and the percentage change in the price of Intel?

b. If the maintenance margin is 25%, how low can Intel’s price fall before you get a margin call?

c. How would your answer to ( b ) change if you had financed the initial purchase with only \)10,000 of your own money?

d. What is the rate of return on your margined position (assuming again that you invest \(15,000 of your own money) if Intel is selling after one year at (i) \)44; (ii) \(40; (iii) \)36?

What is the relationship between your percentage return and the percentage change in the price of Intel? Assume that Intel pays no dividends.

e. Continue to assume that a year has passed. How low can Intel’s price fall before you get a margin call?

Open-end equity mutual funds find it necessary to keep a significant percentage of total investments, typically around 5% of the portfolio, in very liquid money market assets.

Closed-end funds do not have to maintain such a position in “cash-equivalent” securities. What difference between open-end and closed-end funds might account for their differing policies?
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