Week 7 Assignment 7: Homework 7

Strayer University

FIN 100: Principles Of Finance

Homework 7

Discussion Question 1 – Would primary markets exist without the existence of secondary markets? Why or why not?

Primary markets can and would exist without secondary markets because there would still be new securities that can be sold to investors.

Discussion Question 2 – Describe situations where an investor might use a limit order, stop order, market order, trade on margin, or execute a short sale.

Limit orders specify a particular price to be met or bettered. An investor can attempt to pay no more than a certain price in the purchase of a new investment/stock or receive no less than a certain price in the sale of a stock but complete transactions can’t be guaranteed for either a purchase or sale.

Stop orders are orders to sell stock at market price when the price is expected to fall to a specified level. An investor would use this to try and get his funds back when a stock isn’t doing well but if the stock is starts to do well they can cancel the stop order.

Market order ensures that a customer’s order will be executed quickly, at the best price a broker can obtain. When an investor wants to be positive of quickly getting a foothold in a stock or getting out of a stock they would probably want to use a market order.

A short sale is when securities are sold that the seller doesn’t own. Investors will look to this option if they believe there is a high probability of price decline for the securities in the future.

Trade on margin is the using of borrowed funds from a broker to trade a financial asset, which forms the collateral for the loan from the broker. An investor would use this when they believe they have a promising stock option available and want to jump on it before it is too late.

Discussion Question 3 – Merrill Lynch is a full service broker; Charles Schwab is a discount broker. E*Trade is an online broker. Visit their websites and compare and contrast their services, If you were going to trade stocks, which firm would you prefer to use as your broker? Why?

As someone new to trading stocks, I would chose Merrill Lynch as my broker because I feel that having that face-to-face human interaction is important, also I have someone I can call or go see when I have concerns. E*Trade maybe a better option for those with more knowledge about what their doing trading stocks.

Discussion Question 4 – Visit the website of the Certified Financial Planner (CFP) Board. Type the word “ethics” into the site’s search function. Discuss some of the pages you see relating to how the CFP Board emphasizes among its members.

Just within the first few pages, it seems as though the CFP Board wants to ensure that its members as well as the public are aware of its Code of Ethics and want opinions if there is anything that needs to be added or taken way.