Ch 3, Question 13 Here is some price information on Marriott Bid 39.95 Ask 40.05

Question

Ch 3, Question 13 Here is some price information on Marriott Bid 39.95 Ask 40.05 Marriot You have placed a stop-loss order to sell at $40. What are you telling your broker? Given market prices will your order be executed? Question 15 You have borrowed $20,000 on margin to buy shares in Disney, which in now selling at $40 per share. Your account starts at the initial margin requirement of 50%. The maintenance margin is 35%. Two days later, the stock price falls to $35 per share. a. Will you receive a margin call? b. How low can the price of Disney shares fall before you receive a margin call? Question 16 On January 1, you sold short one round lot (that is, 100 shares) of Four Sister stock at $21 per share. On March 1, a dividend of $2 per share was paid. On April 1, you covered the short sale by buying the stock at a price of $15 per share. You paid 50 cents per share in commissions for each transaction. What is the value of your account on April 1?

Explanation / Answer

13)

The broker is instructed to sell Marriott shares as soon as the Marriott shares trade at a bid price of $40 or less. The broker will attempt to execute, but may not be able to sell at $40, since the bid price is now $39.95. The price at which shares would be sold may be more or less than $40 because the stop loss order becomes a market order to sell at current market prices.

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