Stocks Intermediate: Types of Stock Accounts

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1.
Option trading involves _______.
Choose wisely. There is only one correct answer.
More risk than traditional stocks and bonds. Because there is the potential for significant gains and losses, depending on the movement of the underlying stock, option trading involves significantly higher risk than traditional stocks and bonds.
2.
In order for arbitrage to work, the security must be priced the same in the two separate markets.
Choose wisely. There is only one correct answer.
False. Arbitrage is done in an attempt to profit from temporary price differences in the security in the two separate markets.
3.
The investor information required to establish a cash account includes all of the following except _______.
Choose wisely. There is only one correct answer.
The investors occupation. In order to establish a cash account, the investor is responsible for providing basic personal information, including his or her name, address and phone number, a tax ID or Social Security number, and proof that he or she is of legal age.
4.
Because a margin account charges interest, there are no additional commission charges as in other stock accounts.
Choose wisely. There is only one correct answer.
False. Each time a margin investor executes a trade, the responsible broker is paid a commission, calculated as a percentage of the total transaction value.
5.
One of the primary advantages of wrap accounts is that they are less expensive than other account types.
Choose wisely. There is only one correct answer.
False. The primary advantage of the wrap account is that there is no incentive for the broker to churn the account. However, investors should be aware that wrap account fees can be as high as 3 percent.