Choose wisely. There is only one correct answer to each question.
0%
Keep studying!
Review your answers below to learn more.
1.
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.
2.
All else being equal, which of the following planners would have the biggest conflict of interest regarding your money?
A commission-based planner. Anyone who earns commissions has an interest in encouraging as many trades as possible. To what extent they act on that interest will, of course, vary.
3.
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.
4.
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.
5.
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.
6.
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.
