Planning 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?
Choose wisely. There is only one correct answer.
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.
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.
3.
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.
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 _______.
Choose wisely. There is only one correct answer.
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.
Shorting stock involves _______.
Choose wisely. There is only one correct answer.
Borrowing shares of stock, selling them, and intending to buy them back at a lower price. With shorting, you can actually profit when a stock drops in price.
6.
Financial planners and advisors get paid in one of three possible ways. Which of the following is not one of those ways?
Choose wisely. There is only one correct answer.
None of the above. All of these are ways that planners and advisors get paid.