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Unformatted text preview: 1 Managerial Economics (ARE) 143 University of California, Davis Instructor: John H. Constantine Chapter 5 Problem 1: If you were to visit your local car retailer, there is both a primary and secondary market in action. Explain. Is the car retailer a dealer or broker? Why? Problem 2: On the NYSE, does a spet act as a dealer or broker? Problem 3: (a) What is the difference between a “market order” and a “limit order”? What is the potential downside to each type of order? (b) What is a “stop-loss order”? Why might it be used? Is it sure to stop a loss? (c) Suppose ABC Corporation is currently trading at $100. You want to buy it if it reaches $120. Why type of order should you submit? (d) Suppose XYZ Corporation is currently trading at $65. You think if it reaches $70, it will continue to climb, so you want to buy it if it gets there. Should you submit a limit order to buy at $70? Problem 4: (a) There are basically four factors that differentiate stock market indexes. What are they, and briefly comment on each. (b) Is it necessarily true that, all else the same, an index with more stocks is better? What is the issue here? (c) What is the “uptick rule”? Where does it apply? Why does it exist? Problem 5: (a) Three stocks are found in a very small index, Stocks A, B, and C, with respective prices $46, $128, and $75. Suppose B undergoes a 2-for-1 split. Suppose B undergoes a 2-for-1 split....
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This note was uploaded on 01/13/2012 for the course ARE 143 taught by Professor Brinkley,g during the Spring '08 term at UC Davis.
- Spring '08