Stocks Beginner: Using Financial Services Wisely

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1.
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 _______.
Choose wisely. There is only one correct answer.
Limit order. A limit order limits the price at which the trade is being executed.
2.
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.
3.
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.
4.
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).
5.
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.
6.
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.