Part I: Here Is Some Price Information On University Stock S

Part Ihere Is Some Price Information On University Stock Suppose That

Part I Here is some price information on university stock. Suppose that the university trades in a dealer market. Bid Ask 55.25 55.50 Suppose you have submitted an order to your broker to buy at market. At what price will your trade be executed? Suppose you have submitted an order to sell at market. At what price will your trade be executed? Suppose you have submitted a limit order to sell at $55.62. What will happen? Suppose you have submitted a limit order to buy at $55.37. What will happen? Please submit your analysis in a Word document. Part II In an essay address the following: You have $5,000 to invest for the next year and are considering three alternatives: A money market fund with an average maturity of 30 days offering a current yield of 6% per year. A 1-year savings deposit at a bank offering an interest rate of 7.5%. A 20-year U.S. Treasury bond offering a yield to maturity of 9% per year. What role does your forecast of future interest rates play in your decisions? Your paper must be in a Word document of 2-4 pages , not counting the title page. Include your calculations in a table within your paper and be sure to submit only one document to be graded in response to this assignment. Your paper must be formatted in accordance with APA.

Paper For Above instruction

This analysis explores two key financial scenarios. The first involves understanding the execution price of trades in a dealer market for university stock, while the second examines investment options based on interest rate forecasts and their implications for personal investment decisions.

Part I: University Stock Price and Trading Orders

In a dealer market, the bid and ask prices are fundamental in determining trade execution prices. The bid price ($55.25) represents the highest price a buyer is willing to pay, while the ask price ($55.50) indicates the lowest price a seller is willing to accept.

When placing a market order to buy, the order is filled at the best available price, which in this case is the ask price of $55.50. Therefore, a buy market order will be executed at approximately $55.50.

Conversely, a market order to sell will be executed at the bid price, which is $55.25. This is because the prevailing highest price buyers are willing to pay is $55.25.

Regarding limit orders, these are orders to buy or sell only at specified prices or better. A limit order to sell at $55.62, which exceeds the current ask price, is higher than the highest bid, and thus, it will not be executed immediately. It will rest in the order book waiting for the market to rise to that level.

On the other hand, a limit order to buy at $55.37, which is higher than the bid but below the ask, will be executed if the market price rises to or above $55.37. Currently, since the bid is at $55.25 and the ask at $55.50, such a buy order will only be filled if the market price increases to $55.37 or higher and matches or surpasses the ask price.

Part II: Investment Decision-Making and Interest Rate Forecasts

With $5,000 to invest over the next year, the choice among a money market fund, a bank savings deposit, and a long-term Treasury bond relies heavily on expectations of future interest rates and their impact on available returns.

The money market fund, with an average maturity of 30 days and a current yield of 6%, offers liquidity and relatively low risk. Its short duration makes it less sensitive to interest rate changes, making it suitable if future rates are expected to fall or remain stable.

A 1-year savings deposit at 7.5% provides a slightly higher return with minimal risk, especially if interest rates are expected to decline or stay steady. Its fixed rate adds certainty to investment earnings.

The 20-year U.S. Treasury bond, with a yield to maturity of 9%, offers a higher return but is more sensitive to interest rate movements due to its long duration. If future interest rates are expected to fall, locking in a 9% yield now could be advantageous. Conversely, if rates are anticipated to rise, the bond’s value may decline, diminishing returns if sold prior to maturity.

Forecasting future interest rates is crucial in making these choices. If one expects interest rates to decline, investing in long-term bonds can lock in higher yields. If growth in interest rates is anticipated, shorter-term investments like money market funds or savings deposits are preferable to avoid capital losses.

In conclusion, a well-informed forecast of future interest rate trends influences the timing and selection of investments. Given current yields, if rates are expected to fall, the long-term Treasury bond is attractive; if rates are expected to rise, shorter-term instruments mitigate risk. Making a decision thus hinges on economic outlooks, inflation expectations, and monetary policy outlooks.

References

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  • Federal Reserve. (2023). Economic Projections and Policy Outlook. Retrieved from https://www.federalreserve.gov
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  • Investopedia. (2023). How Dealer Markets Work. Retrieved from https://www.investopedia.com
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