Concept explainers
Stock markets True or false?
- a. The bid price is always greater than the ask price.
- b. An investor who wants to sell his stock immediately should enter a limit order.
- c. The sale of shares by a large investor usually takes place in the primary market.
- d. Electronic Communications Network refers to the automated ticker tape on the New York Stock Exchange.
a)
To discuss: Whether the statement is true or false.
Explanation of Solution
Given statement:
Bid price is always greater than ask price
Justification:
The given statement is false as ask price will be higher at which the traders are willing to sell. On the other hand, is Person X sells a share of stock he will receive a lower bid price at which the traders wishes to buy the share of stock from him.
Hence, the statement is false.
b)
To discuss: Whether the statement is true or false.
Explanation of Solution
Given statement:
An investor who sells the stock immediately should enter a limit order.
Justification:
The investor need to enter the market order.
Hence, the statement is false.
c)
To discuss: Whether the statement is true or false.
Explanation of Solution
Given statement:
The sale process of large investor will takes place in primary market.
Justification:
Most of the investors will sell the shares in secondary market instead of primary market.
Hence, the statement is false.
d)
To discuss: Whether the statement is true or false.
Explanation of Solution
Given statement:
Electronic Communications Network denotes to the automated ticker tape on the City NY
stock Exchange.
Justification:
Electronic Communications Network refers to trading shares of stock and not automated ticker tape on the City NY stock Exchange.
Hence, the statement is false.
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Chapter 4 Solutions
PRIN.OF CORPORATE FINANCE
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