Investments, tenth edition

   SOLUTIONS TO CONCEPT CHECKS 

 E-INVESTMENTS EXERCISES 

 When you are choosing which brokerage firm(s) to use to execute your trades, you should 

consider several factors. Also, a wide range of services claim to objectively recommend bro-

kerage firms. However, many are actually sponsored by the brokerage firms themselves. 

   Go to the Web site   www.consumersearch.com/online-brokers/reviews   and read 

the information provided under “Our Sources.” Then follow the link for the Barron’s rat-

ings. Here you can read the Barron’s annual broker survey and download the “How the 

Brokers Stack Up” report, which contains a list of fees. Suppose that you have $3,000 to 

invest and want to put it in a non-IRA account. 

    1.  Are all of the brokerage firms suitable if you want to open a cash account? Are they all 

suitable if you want a margin account?  

   2.  Choose two of the firms listed. Assume that you want to buy 200 shares of LLY stock 

using a market order. If the order is filled at $42 per share, how much will the commis-

sion be for the two firms if you place an online order?  

   3.  Are there any maintenance fees associated with the account at either brokerage firm?  

   4.  Now assume that you have a margin account and the balance is $3,000. Calculate the 

interest rate you would pay if you borrowed money to buy stock.   

 

 

 

 

1. Limited-time shelf registration was introduced because its cost savings outweighed the 

disadvantage of slightly less up-to-date disclosures. Allowing unlimited shelf registration would 

circumvent “blue sky” laws that ensure proper disclosure as the financial circumstances of the 

firm change over time.  

   2.   a.    Used cars trade in dealer markets (used-car lots or auto dealerships) and in direct search 

markets when individuals advertise in local newspapers or on the Web.

    b.   Paintings trade in broker markets when clients commission brokers to buy or sell art for them, 

in dealer markets at art galleries, and in auction markets.  

   c.   Rare coins trade mostly in dealer markets in coin shops, but they also trade in auctions and in 

direct search markets when individuals advertise they want to buy or sell coins.     

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6/18/13   7:44 PM

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  How Securities Are Traded  

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   3.      a.    You should give your broker a market order. It will be executed immediately and is the 

cheapest type of order in terms of brokerage fees.  

   b.   You should give your broker a limit-buy order, which will be executed only if the shares can 

be obtained at a price about 5% below the current price.  

   c.   You should give your broker a stop-loss order, which will be executed if the share price starts 

falling. The limit or stop price should be close to the current price to avoid the possibility of 

large losses.     

   4.  Solving

   

100P 2 $4,000

100P

5 .4

 

   yields  P   5  $66.67 per share.  

   5.  The investor will purchase 150 shares, with a rate of return as follows: