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Investing Basics Beginner: Using Financial Services Wisely

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1.
If you place a market order to buy 100 shares of fictional company Wolverines Sailboats Corp., at what price and when would the trade be executed?
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The trade would be executed immediately at the best available price. A market order tells the broker to buy or sell at the best price available, and the trades are usually executed immediately, assuming the market is open.
2.
Say you bought 100 shares of fictional company Hawkeyes Footballs, Inc. on margin for $100 per share. You borrow 50% of the funds used for the purchase. If the stock price increased to $110, what would your return on investment be? (Ignore commissions and interest costs.)
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20%. It will cost $10,000 to purchase 100 shares at $100. Since you are buying on margin, and borrow 50% of the funds, you put up only $5,000. The stock goes up 10%, so the value of the 100 shares is now $11,000, a $1,000 increase. The return on your investment, however, is 20% ($1,000/$5,000).
3.
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?
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$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).
4.
A discount brokers commission is based on the total value of holdings in the customers account.
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False. Discount brokers earn commissions based on trades.
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?
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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?
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None of the above. All of these are ways that planners and advisors get paid.