Choose wisely. There is only one correct answer to each question.
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1.
If you place an order with your broker to buy a stock provided that the price does not exceed $40 per share, you have placed a _______.
Limit order. A limit order limits the price at which the trade is being executed.
2.
Say you are relaxing at home a week after having bought some stock on margin, and the price of the stock has dropped immensely during those days. Suddenly your phone rings, and it is your broker. You know instinctively that this is _______.
A margin call. If the stock price drops deeply, your broker may worry that you wont be able to pay back the loan, and he or she will give you a margin call asking you to add more cash to your account.
3.
A discount brokers commission is based on the total value of holdings in the customers account.
False. Discount brokers earn commissions based on trades.
4.
You short 100 shares of fictional company Hoosier Soybeans Corp. at $20. The shares subsequently drop to $15, and you close out the short position. What would your cash profit be?
$500. Youll borrow 100 shares and immediately sell them to receive $2,000 (100 shares x $20/share). Once the stock drops to $15, you buy the shares back for $1,500. Your cash profit is $500 (cash received of $2,000 minus cash paid of $1,500).
5.
Full-service brokers who get paid by commission may have an interest in trading frequently for you. What are some possible downsides of this?
Both of the above. Frequent trading, while it may have other values, can lead to commissions that chip away at your returns, and it can lead to more taxes on gains that you make.
6.
Financial planners and advisors get paid in one of three possible ways. Which of the following is not one of those ways?
None of the above. All of these are ways that planners and advisors get paid.
