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HOMEWORK PROBLEMS
Chapter 16, Investing in Stocks
1. When buying or selling stock on the New York Stock Exchange, who would execute
your trade and how could you be assured that there will always be someone willing to
buy if you are willing to sell or sell if you are willing to buy?
2. What and where is the OTC and who insures that trades will always take place?
3. If Americans wish to buy stocks in foreign companies, what two ways can they
accomplish this?
4. Why would an investor utilize a full-service broker, and what might be the limitations
of this reason?
5. When placing an order, what information must you provide to the broker?
6. Distinguish between a market order and a limit order.
7. Explain what it means to buy stock on margin.
Homework Problems to accompany Personal Finance, Third Edition by Jeff Madura
8. If you purchased 100 shares of Cisco at $15 per share and the price increased to $20
per share, what would be the return on your investment? What impact on your return
would there be if you made the purchase on margin when the margin requirements are
50%?
9. A special form of limit order is called a stop order. Stop orders may be a buy stop
order or a sell stop order. Give a specific example of when each of these might be
used.
10. What is a risk of buying stock on margin?
Homework Problems to accompany Personal Finance, Third Edition by Jeff Madura