Question

As an investor, based on your goals and investment objectives you create an investment plan. You choose your stockbroker that suits your needs. But when it is time to actually buy or sell securities in the securities market, it is important to understand how your transactions will be executed. Based on your expectations regarding a specific transaction you have the option to select from three different order types: market order, limit order and a stop-loss order. Janis is an experienced investor who enjoys researching and investing in individual stocks that appear promising. On August 12, 2011 she is reviewing the trading information for a new home security system company Secure You, presented in the table below. Stock Information for Secure You Trade Time: 1:02PM EDT Last Trade: 83.71 Open: 78.25 Prev Close: 77.00 Day's Range: 75.06-85.88 Change: +6.71 (0.09) She would like to buy 100 shares of stock at some point during the day if the price falls to $82.14, therefore she places a order at 1:02PM EDT. When she places a day order, if the price does not reach $82.14 by the end of the day, her order will be . Her broker is able to execute the trade two hours later, obtaining her 100 shares at $82.14 each. Suppose the price of the stock falls for the rest of the day, eventually closing at a price of $81.61. In this case, the total value of the shares she purchased between the time of her purchase and the end of the day. If she had instead placed a order at 1:02PM and obtained the same number of shares at $83.92 per share, she would have by the end of the day instead.

Answer 1

1st Paragraph first blank ) Limit Order (As she has put a limit of $82.14. This is the exact price at which she is willing to buy a share of this stock)

1st Paragraph second blank ) cancelled. Because day orders are cancelled by broker at the end of the day if they are not executed. That is the order is valid only for that day.

2nd Paragraph first blank ) has fallen down by $63

Value of 100 shares at the time of purchasing considering she has bought 100 shares at 82.14 = $8214.0

Value of 100 shares at the end of day =$8161.00

Thus loss in value =(8214-8161) = $53

2nd Paragraph second blank ) market order (As she bought all the shares at the price that sellers were willing to sell in the market at that time which was $83.92)

2nd Paragraph third blank ) lost $231 (Note since the shares are not sold yet hence these losses are unrealised losses)

Value of 100 shares at the time of purchasing considering she has bought 100 shares at 83.92 = $8392.0

Value of 100 shares at the end of day =$8161.00

Thus loss in value =(8392-8161) = $231