Stocks 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.
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.
3.
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 _______.
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Limit order. A limit order puts an upper or lower limit on the price, depending on whether you are buying or selling.
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.
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.
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).