Question

(9) Fincorp stock is traded on the NYSE market. The followings are the specialist's quotes for Fincorp stock. Bid Asked 55.25 55.50 At the same time, there are two limited orders outstanding: one is buying Fincorp stock at $55.35 and the other is selling Fincorp stock at $55.45. If you submit a market buy order, at what price will your order be filled? A) $55.50 B) $55.45 C) $55.35 D) $55.25 E) None of above (10) You are bearish on Telecom and decide to sell short 200 shares at the current market price of $70 per share. To fulfill the broker's initial margin requirement of 60%, you put $8,400 cash into your brokerage account. How high can the price of the stock go before you get a margin call if the maintenance margin is 40% of the value of the short position? A) $91 or higher B) $86.15 or higher C) $84 or higher D) $80 or higher E) $74.67 or higher F) $50 or higher

Answer 1

9)

The Bid Price

The bid price is the price that an investor is willing to pay for the security.

For example, if an investor wanted to sell a stock, he or she would need to determine how much someone is willing to pay for it. This can be done by looking at the bid price. It represents the highest price that someone is willing to pay for the stock.

The Ask Price

The ask price is the price that an investor is willing to sell the security for.

For example, if an investor wants to buy a stock, they need to determine how much someone is willing to sell it for. They look at the ask price, the lowest price someone is willing to sell the stock for.

So , here Two ask prices are there, one is$ 55.5 and second one is limited outstanding selling order $ 55.45,

We have to take lowest of those two , so if we place order , it will take at         $ 55.45.

So Option B) is correct

10)

Here 200 shares are available for short position.

Initial margin amount= $ 8400

Short Sale value= 200shares * 70 per share

                          = $ 14000

So Total margin requirement is = 14000+8400

                                                      = 22400.

Maintenance margin requirement is 40% of Short position

So , The maximum price of the stock go before margin call is = let as take amount as ” $x”

So, Short sale value+ Maintenance margin = 22400

      [ 200*x] + [(200*x)*40%]= 22400

       1.4(200*x)= 22400

       200*x= 22400/1.4

       200*x=16000

       X= 16000/200

      X= 80

, The maximum price of the stock go before margin call is 80 or higher

So option D is correct.