Choose wisely. There is only one correct answer to each question.
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1.
Full-service brokers typically _______.
Provide a lot of personal attention and advice. Though full-service brokers certainly charge large commissions, they do provide personal attention and advice, and they deserve to get paid for it. An inherent problem with paying for advice via commissions is that the advisor gets paid more the more you trade, and trading frequently is typically not in your best interests.
2.
Buying an investment on margin means _______.
Borrowing money from another to purchase it. Buying on margin involves borrowing money, usually from a broker, to purchase an investment and then returning the money along with a commission.
3.
If you choose a discount broker over a full-service broker, you may have to sacrifice certain services. Which of the following is not one of those services that might be sacrificed?
Trades. Trades are the one service that all brokers will offer, or else they would not be brokers at all. The other services are more likely to be offered by the full-service brokers.
4.
If you are shorting a stock, and it increases greatly in price and keeps on increasing, what would be your reaction?
You would panic. With shorting, you only make money if the stock price decreases. If it rises, you must eventually pay it back by buying it, and that means you will pay through the nose to buy it back.
5.
If you place an order with your broker and it sits there for days waiting for a certain price limit to be activated, you have most likely placed a _______.
Limit order. A limit order puts an upper or lower limit on the price, depending on whether you are buying or selling.
6.
If you are paying your financial advisor 1.2% of your portfolio every year, your planners compensation is known as _______.
A percentage of your assets. This payment method involves charging you a certain percentage of the assets under the advisors management.
