Equity Investments - Equity Investments Section 1
1. For stock X, market has the following limit oders standing on its book:
| Buyer | Bid size(# ofshares) | Limit Price($ | Offer size(# of shares) | Seller |
| A | 900 | 9.70 | ||
| B | 100 | 9.84 | ||
| C | 300 | 9.89 | ||
| D | 200 | 10.02 | ||
| 10.03 | 700 | X | ||
| 10.11 | 1000 | Y | ||
| 10.16 | 300 | Z |
Dave submits a day order to sell 900 shares, limit $9.83. What would Dave’s average trade price be, assuming that no more buy orders are submitted on that day after Dave’s submission?
- Option : B
- Explanation : Dave’s average trade price is: $9.93 = (200 * $10.02 +300 * $9.89 +100 * $9.84) / (200 + 300 + 100) Dave’s sell order first fills with the most aggressively priced buy order, which is D’s order for 200 shares at $10.02. Dave still has 800 shares for sale. The next most aggressively priced buy order is C’s order for 300 shares at $9.89. This order is filled. Dave still has 500 shares for sale. The next most aggressively priced buy order is B’s order for 100 shares at $9.84. A third trade takes place. Dave still has 400 shares for sale. The next buy order is A’s order for 900 shares at $9.70. However, this price is below Dave’s limit price of $9.83. Therefore, no more trade is possible.
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- Option : B
- Explanation : An order is filled at the best available price as long as this price is lower than the limit price. In this case, the best available price is the market ask price = $14.54 * (1 + 0.7%) = $14.64. Since this price is lower than the limit price of $14.75, the order will be filled at this price.
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3. The limit orders for a stock on market’s book is provided below:
| Buyer | Bid Size(# ofshares) | Limit Price($) | Seller | Offer Size(# ofshares) | LimitPrice ($) |
| 1 | 400 | 18.30 | 1 | 300 | 20.00 |
| 2 | 300 | 18.45 | 2 | 200 | 20.15 |
| 3 | 100 | 18.95 | 3 | 200 | 20.35 |
| 4 | 200 | 19.50 | 4 | 100 | 20.95 |
| 5 | 300 | 9.80 | 5 | 200 |
If a trader submits an immediate-or-cancel limit buy order for 600 shares at a price of $20.35, the most likely average price the trader would pay is:
- Option : B
- Explanation : The limit buy order will be filled first with the most aggressively priced limit sell order and will be followed by filling with the higher priced limit sell orders that are needed up to and including the limit buy price until the order is filled. Average price = [(300 * $20.00) + (200 * $20.15) + (100 * $20.35)] / 600 = $20.11
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- Option : B
- Explanation : Such investments trade in the secondary market and are a pooled investment vehicle.
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- Option : B
- Explanation : Since this a best-effort arrangement, the issuer (IFT) bears the risk that the issue may be undersubscribed.
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