Choose wisely. There is only one correct answer to each question.
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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.
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.
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.
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.
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.
What is the conflict of interest that you might encounter with a full-service broker who earns commissions?
The broker may encourage frequent trading in order to get more commissions. While the other choices might still occur, only this one is a conflict of interest. Make sure your broker has your best interests at heart.