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.
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?
Choose wisely. There is only one correct answer.
$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).
2.
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.
3.
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.
4.
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.
5.
Sometimes, the more you trade, the lower your per-trade commissions.
Choose wisely. There is only one correct answer.
True. Some brokers reward "active traders," as they are called, with lower per-trade commissions, provided that the traders meet a certain minimum number of trades per time period.
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.