Chapter 4, Problem 1PS

Stock markets True or false?

1. a. The bid price is always greater than the ask price.
2. b. An investor who wants to sell his stock immediately should enter a limit order.
3. c. The sale of shares by a large investor usually takes place in the primary market.
4. d. Electronic Communications Network refers to the automated ticker tape on the New York Stock Exchange.

Summary Introduction

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.

Summary Introduction

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.

Summary Introduction

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.

Summary Introduction

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.