Question

Please indicate which type of orders you should place and example how the order will be executed in each of the following examples:

1. You want to buy shares of intel to diversify your portfolio. You believe the share price is approximately at the “fair” value, and you want the trade done quickly and cheaply.
2. You want to buy shares of Intel but believe that the current stock price is too high given the firm’s prospects. If the shares could be obtained at a price 5% lower than the current value, you would like to purchase shares for your portfolio.
3. You plan to purchase a condominium sometime in the next month or so and will sell your shares of Intel to provide the funds for your down payment. While you believe that Intel share price is going to rise over the next few weeks, if you are wrong and the share price drops suddenly, you will not be able to afford the purchase. Therefore, you want to hold on to the shares for as long as possible but still protect yourself against the risk of a big loss.

please help me.

Answer 1

Below is the solution please feel free to comment for any clarifiaction

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You want to buy shares of Intel to diversify your portfolio. You believe the share price is approximately at the “fair” value, and you want the trade done quickly and cheaply.

ANSWER: Market order

• You should give your broker a market order. This order will be executed immediately. It is the cheapest and fastest type of order due to brokerage fees.

You want to buy shares of Intel but believe that the current stock price is too high given the firm’s prospects. If the shares could be obtained at a price 5% lower than the current value, you would like to purchase shares for your portfolio.

ANSWER: Limit buy order

• Ask your broker for a limit buy order this way it will be executed only if the shares are shown to fall below 5% the current price.
• Example: An investor wants to purchase shares of XYZ stock for no more than $10. The investor could submit a limit order for this amount and this order will only execute if the price of XYZ stock is $10 or lower.

You plan to purchase a condominium sometime in the next month and will sell your shares of Intel. You believe that Intel share price is going to rise over the next few weeks if you are wrong and the share price drops suddenly, you will not be able to afford the purchase. Therefore, you want to hold on to the shares for as long as possible but still protect yourself against the risk of a big loss.

ANSWER: Stop-loss order

• You would ask the broker for a stop-loss order. This way the stock will be sold if the stock price falls below a stipulated level. The price should be close to the current price to avoid large losses. When the stop price is reached, a stop order becomes a market order.