Lately, some of my tutoring clients have been using our textbook, Pass the 65, or Pass the 66, to write their own practice questions. Some of the questions that are coming out are outstanding, too. Like this one:
An investor interested in purchasing 100 shares of stock in Amazon should place a
- Sell Stop
- Buy Stop
- Market Order
- Buy Stop Limit
EXPLANATION: obviously, you can eliminate any answer with the word “sell” in it, but notice how the question seems to be missing key details. That will really do a number on a test taker, trust me. Don’t panic. Whatever information was not provided is just as important as what was provided. What in the question justifies either a “buy stop” or a “buy stop limit” answer? I see nothing about wanting to buy only if the stock trades up at a certain price. All I see is that an investor wants to buy 100 shares of stock. So, if you want to get your order filled, you place a market order–Answer C. Right? At first, a question like this can seem too hard–just hang with it. Consider what the question said, and what it didn’t.