80.2K

Verified Solution

Link Copied!

(A) If you execute a market buy order of 400 shares of ABC, how much in total will you pay (ignore all other costs)? What is the average price per share you buy? What are the best market price and quantity immediately following your action?

(B) Suppose you have purchased 300 shares of ABC previously at a cost of $3.00 per share. If the maximum amount you are willing to lose for this investment is 20%, suggest a kind of order you will use for this purpose, with reference to the current market condition as depicted in the table above. (Give the type of order: market/limit/stop loss; buy/sell; and price)

(C) Suppose you have short sold 200 shares of ABC previously at a cost price of $4.60 per share. If you intend to have a minimum return of 20% for this investment, suggest a kind of order you will use for this purpose, with reference to the current market condition as depicted in the table above. (Give the type of order: market/limit/stop loss; buy/sell; and price)

(D) Suppose right now, one of your clients requests to buy 800 shares of ABC by the end of the trading day. There are two possible strategies you may take to handle this order: use a market order or use a limit order. Explain a. How would you use market order in this case? What will be the result? What are the pros and cons of using market order in this case. b. How would you use limit order in this case? What will be the result? What are the pros and cons of using limit order in this case.

(E)

i) Calculate the volume-weighted average price (VWAP) of ABC from 10:15 to 10:39.

ii) Which one of the transactions above (Order No.#) beat the VWAP (for the trader who placed the order)?

BID ASK Time Trader Size Price Price Size Trader Time 09:55 HSU 300 3.30 3.60 200 CUH 09:15 10:09 CTU 200 3.10 3.90 500 HKU 09:30 09:45 PLU 600 2.85 4.10 300 MPU 10:00 10:05 UST 500 2.65 4.25 100 BUH 09:58 No.# Time Trades or Orders 1 10:15 2 10:20 3 10:27 4 10:30 5 10:35 A market order to buy 300 shares A market order to sell 200 shares A limit order to buy 500 shares at $3.00 A limit order to sell 300 shares at $3.90 The limit order to buy at $3.10 was all cancelled A market order to sell 300 shares. This triggered a stop loss sell order of 300 shares at $3.00 A limit order to buy 500 shares at $3.20 6 10:38 7 10:38 8 10:39

Answer & Explanation Solved by verified expert

See Answer