Choosing a Broker

There are several factors that should be considered when you are choosing which brokerage firm(s) to use to execute your trades. Go to the website www.fool.com/dbc/dbc.htm and read the information provided about choosing a broker. Then follow the link for the "Broker Comparison Table". 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 Wax Works stock using a market order. If the order is filled at $12 per share, how much will the commission be for each firm if you place an online order? How much will it be if you place it with broker assistance? (Be sure to read the footnotes and follow appropriate links if more information is necessary to answer the question.)
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. Click on the link for "More Info" for one of the brokerage firms you chose. Find the information about margin rates. Calculate the interest rate would you pay if you borrowed money to buy stock. (You might have to follow links or search for a base rate by doing an Internet search for the firm's name and "margin rates". Alternatively, you can call the firm at the number listed on the web page to ask what their margin rate is for your account level.)

IPOs

Go to the IPO Central website at www.hoovers.com/global/ipoc/index.xhtm to see a list of currently proposed initial public offerings and those that have recently started trading.

1. Click on the "IPO Scorecard" link, then the "Best/Worst Returns" link. How many firms had returns above 30% for the most recent quarter? How many had returns lower than -30%?
2. Under the "IPO Scorecard" menu, click on the "Biggest First Days" link. Which firms had the best and the worst first-day returns for the last quarter?
3. Follow the "Money Left on the Table" link in the "IPO Scorecard" section. Assume that explicit costs for each underwriting were 7.5% of the issue's value based on the offer price. Calculate the amount of the explicit costs for the first firm listed. How does this number compare to the money left on the table? Repeat the calculation for the next two firms listed.
4. For the first firm listed, calculate the number of shares offered in the IPO. What offer price would have made the explicit costs of the offering equal to the implicit costs?