P1.T3.200. Market and limit orders

[David Harper CFA FRM]

Questions:

200.1. You want to purchase 5,000 shares of a stock with the following real-time quote: bid $29.94 - ask $30.08 with bid-ask sizes of 3,000 shares (bid) and 10,000 shares (ask). The previous price close was $29.99. Which of the following is the most likely execution of your market buy order?

a. You pay $29.94 for all 5,000 shares
b. You pay $29.99 for all 5,000 shares
c. You pay $29.94 for 3,000 shares but you pay $30.08 for the remaining 2,000 shares
d. You pay $30.08 for all 5,000 shares

200.2. You own 10,000 shares of a stock that is currently quoted with a bid price of $19.95 and an ask (offer) price of $20.03, with bid-ask sizes much larger than your holdings. You enter a limit sell order at $20.00. Which of the following executions of your LIMIT order is most likely?

a. Your sale will be immediately executed at $20.00
b. Your sale will be immediately executed at $19.95
c. Your sale will be immediately executed at $20.03
d. Your sale may not be executed (or a partial fill may be executed)

200.3. Joe Smith owns 100,000 shares of ACME stock which currently trades at $50.00. He enters a stop-limit order to sell at $48.00 with a limit of $47.00. Which of the following is most likely?

a. The order is not logical, the stop should be above the current $50.00
b. Conditional on the bid or ask falling to $48, the sell order is filled only if the sale can be executed at $47 or higher, but may not be filled
c. Conditional on the bid or ask falling to $48, the sell order will be immediately executed but the price will not be guaranteed
d. The sell order immediately begins execution at $48 but ceases if the bid drops below $47 such that a partial fill is possible.

Answers:

• Here in forum

 

[nychets]

c, d, b

 

[Angelo86na]

200.1 answer c (or the second b)
200.2 for esclusion answer d
200.3 answer b

 

[David Harper CFA FRM]

@nychets & @Angelo86na: I notice you both answered (C) for 200.1. I hope my question is well stated but please note: the bid/ask is $29.94 (size 3,000) - $30.08 (size 10,000). As a buyer, the best offer by market sellers is $30.08, so I can likely get my buy order filled at $30.08 or higher (most likely higher if i exceed the size).

Since this market buy order is within the size, my answer is (D). Please let me know if you think the question is imprecise?

Thanks!

 

[Angelo86na]

Sorry David, is my fault. Your question is precise, I wore the clothes of the dealer answering the question.

 

[nychets]

Doh! Question is fine, I can't imagine what I did there. I trade all day long, thank heaven I don't err like that every day, lol. I answered too quickly and carelessly. It's an excellent reminder for me to read the easy questions carefully on the Level II exam in June 2013!

 

[David Harper CFA FRM]

@nychets - thank you nychets ... phew ... I don't trade quite enough to be facile with the bid/ask so I'm glad it looks okay, thanks,

 

[Niravparikh281]

Hi..

Why not D over B for 3rd question. Investors can input any bid or ask they want but a trade must get executed at 48 for the stop-limit order to kick in. Not sure what I am missing

 

[Nicole Seaman]

Hi..

Why not D over B for 3rd question. Investors can input any bid or ask they want but a trade must get executed at 48 for the stop-limit order to kick in. Not sure what I am missing

Hello @Niravparikh281

Thank you for using Bionic Turtle! These are part of our paid practice questions so the detailed answers and explanations are only available to paid members. If you would like to view the answers and gain access to the paid forum threads where this is discussed in more detail, you can view our study packages here: https://www.bionicturtle.com/features-pricing-2/. I'm happy to answer any questions that you have regarding the purchase process or the services that we offer.

Thank you,

Nicole