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Question 21

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Essentials Of Investments
Found in: Page 81
Essentials Of Investments

Essentials Of Investments

Book edition 9th
Author(s) Zvi Bodie, Alex Kane, Alan Marcus, Alan J. Marcus
Pages 748 pages
ISBN 9780078034695

Short Answer

Here is some price information on Fincorp stock. Suppose first that Fincorp trades in a dealer market.

a. Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed?

b. Suppose you have submitted an order to sell at market. At what price will your trade be executed?

c. Suppose you have submitted a limit order to sell at $55.62. What will happen?

d. Suppose you have submitted a limit order to buy at $55.37. What will happen?

a. $55.50

b. $55.25

c. Trade will not be executed

d. Trade will not be executed

See the step by step solution

Step by Step Solution

Definition

True to its name, the limit order i.e. limits buy order and limit sell order refer to the instructions given by investors to brokers to buy or sell stocks below or above a stipulated price as specified by him.

Calculation of price

a. The trade will be executed at $55.50

Calculation of price at which trade will be executed

b. The trade will be executed at $55.25

Evaluation of scenario

c. The trade will not be executed because the bid price is lower than the price specified in the limit-sell order.

Evaluation of scenario

d. The trade will not be executed because the asked price is greater than the price specified in the limit buy order.

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