Basics Beginner: Using Financial Services Wisely

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1.
Buying an investment on margin means _______.
Choose wisely. There is only one correct answer.
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.
2.
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).
3.
If you are paying your financial advisor 1.2% of your portfolio every year, your planners compensation is known as _______.
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A percentage of your assets. This payment method involves charging you a certain percentage of the assets under the advisors management.
4.
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?
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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.
5.
Full-service brokers typically _______.
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Provide a lot of personal attention and advice. Though full-service brokers certainly charge large commissions, they do provide personal attention and advice, and they deserve to get paid for it. An inherent problem with paying for advice via commissions is that the advisor gets paid more the more you trade, and trading frequently is typically not in your best interests.
6.
If you place an order with your broker to buy a stock provided that the price does not exceed $40 per share, you have placed a _______.
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Limit order. A limit order limits the price at which the trade is being executed.