3 5 13 a 5550 b 5525 c the trade will not be executed

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13. a. 55.50 b. 55.25 c. The trade will not be executed because the bid price is lower than the price specified in the limit sell order. d. The trade will not be executed because the asked price is greater than the price specified in the limit buy order. 14. a. In an exchange market, there can be price improvement in the two market orders. Brokers for each of the market orders (i.e., the buy and the sell orders) can agree to execute a trade inside the quoted spread. For example, they can trade at $55.37, thus improving the price for both customers by $0.12 or $0.13 relative to the quoted bid and asked prices. The buyer gets the stock for $0.13 less than the quoted asked price, and the seller receives $0.12 more for the stock than the quoted bid price. b. Whereas the limit order to buy at $55.37 would not be executed in a dealer market (since the asked price is $55.50), it could be executed in an exchange market. A broker for another customer with an order to sell at market would view the limit buy order as the best bid price; the two brokers could agree to the trade and bring it to the specialist, who would then execute the trade. 15. The SuperDot system expedites the flow of orders from exchange members to the specialists. It allows members to send computerized orders directly to the floor of the exchange, which allows the nearly simultaneous sale of each stock in a large portfolio. This capability is necessary for program trading. 16. The dealer sets the bid and asked price. Spreads should be higher on inactively traded stocks and lower on actively traded stocks. 17. a. You will not receive a margin call. You borrowed $20,000 and with another $20,000 of your own equity you bought 1,000 shares of Disney at $40 per share. At $35 per share, the market value of the stock is $35,000, your equity is $15,000, and the percentage margin is: $15,000/$35,000 = 42.9% Your percentage margin exceeds the required maintenance margin. b. You will receive a margin call when: P 000 , 1 000 , 20 $ P 000 , 1 = 0.35 when P = $30.77 or lower 3-6
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18. a. Over short periods of time, the price of an exchange membership generally increases with increases in trading activity. This makes sense because trading commissions depend on trading volume. b. The price of an exchange membership has risen far less in percentage terms than trading volume. This suggests that the commissions charged to traders on "typical" trades have fallen over time. 19. The proceeds from the short sale (net of commission) were: ($14 × 100) – $50 = $1,350 A dividend payment of $200 was withdrawn from the account. Covering the short sale at $9 per share cost you (including commission): $900 + $50 = $950 Therefore, the value of your account is equal to the net profit on the transaction: $1350 – $200 – $950 = $200 Note that your profit ($200) equals (100 shares × profit per share of $2). Your net proceeds per share was: $14 selling price of stock –$ 9 repurchase price of stock –$ 2 dividend per share –$ 1 2 trades × $0.50 commission per share $ 2 20. (d) The broker will sell, at current market price, after the first transaction at $55 or less. 21. (b) 22. (d) 3-7
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3 5 13 a 5550 b 5525 c The trade will not be executed...

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