Basics Beginner: Using Financial Services Wisely

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Choose wisely. There is only one correct answer to each question.

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1.
If you are paying your financial advisor 1.2% of your portfolio every year, your planners compensation is known as _______.
Choose wisely. There is only one correct answer.
A percentage of your assets. This payment method involves charging you a certain percentage of the assets under the advisors management.
2.
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 _______.
Choose wisely. There is only one correct answer.
Limit order. A limit order puts an upper or lower limit on the price, depending on whether you are buying or selling.
3.
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?
Choose wisely. There is only one correct answer.
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.
4.
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.
5.
What is the conflict of interest that you might encounter with a full-service broker who earns commissions?
Choose wisely. There is only one correct answer.
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.
6.
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.