Solution-At what price would the next market sell order be

At what price would the next market sell order be filled

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Question - a) You are optimistic about Telecom shares. The current market price is $20 per share and you have $5000 of your own to invest. You borrow an additional $5000 from your broker and invest $10 000 in the shares.

i) How far does the price of Telecom shares have to fall for you to get a margin call if the maintenance margin is 30%? Assume the price fall happens immediately.

ii) What is the return on this margin investment if the price of Telecom shares drops to $15 per share? Suppose the interest rate is 10%.

b) Consider the following limit-order book of a specialist. The last trade in the stock took place at a price of $51.

Limit-buy Orders		Limit-sell Orders
Price ($)	Shares	Price ($)	Shares
49.75	200	53.50	150
49.25	300	54.75	200
48.50	200	55.25	300
47.00	300	56.75	400
46.00	400	58.50	300

i) If a market buy order for 500 shares comes in, at what average price will it be filled? At what price would the next market buy order be filled?

ii) If a market sell order for 500 shares comes in, at what average price will it be filled? At what price would the next market sell order be filled?

Reference no: EM133104248

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At what price would the next market sell order be filled

Reference no: EM133104248

Reference no: EM133104248

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