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1.
A margin account is an account in which the investor pays slightly more than the value of the securities being purchased.
False. A margin account is one in which the investor does not have to pay the full value of the trade. Instead, the investor borrows.
2.
A call option grants the owner the right to buy 100 shares of a particular security at a pre-determined price.
True. A call option grants the owner the right to buy 100 shares of a particular security at a pre-determined price.
3.
Each time an investor executes a transaction in a cash account, the broker responsible for handling that trade is _______.
Paid a commission. Each time an investor executes a purchase or sale of a security in a cash account, the broker responsible for handling that trade is paid a commission, calculated as a percentage of the total transaction value.
4.
One of the primary advantages of wrap accounts is that they are less expensive than other account types.
False. The primary advantage of the wrap account is that there is no incentive for the broker to churn the account. However, investors should be aware that wrap account fees can be as high as 3 percent.
5.
In order for arbitrage to work, the security must be priced the same in the two separate markets.
False. Arbitrage is done in an attempt to profit from temporary price differences in the security in the two separate markets.