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1.
A discount brokers commission is based on the total value of holdings in the customers account.
False. Discount brokers earn commissions based on trades.
2.
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.
3.
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.
4.
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.
5.
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.
6.
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.
