The following quotes were observed for

Broan

Corp. (ticker:

BROA)

on the two dates indicated below. Complete parts a through c.

Broan Corp.	BROA		Broan Corp.	BROA
	June 19			June 20
Bid	$14.50		Bid	$14.97
Ask	$14.53		Ask	$15.03

Question content area bottom

Part 1

a. Suppose you decide to use a market order to buy

425

shares of

BROA

on

June

19

and then sell the

425

shares using a market order on

June

20.

Assuming no brokerage commissions, how much of a gain or loss did you make? (Round to two decimal places.)You made a

lossloss

gain nbspgain

of

$enter your response here.

Part 2

b. Suppose you decide to use limit orders instead of market orders. On

June

19,

you put in a limit order to buy

425

shares of

BROA

at

$14.52

per share. On

June

20,

you put in a limit order to sell

425

shares of

BROA

at

$14.99

per share. Both orders were executed on their respective days. Assuming no brokerage commissions, how much of a gain or loss did you make? (Round to two decimal places.)You made a

gain nbspgain

lossloss

of

$enter your response here.

Part 3

c. What are the trade-offs between using market orders and limit orders?

Market orders

Limit orders

are executed instantaneously; it may take some time before a counterparty accepts your

limit order

market order

or it may be the case that your

limit order

market order

is never executed. Using

limit orders,

market orders,

you buy at the ask and sell at the bid, so the bid-ask spread is an implied transaction cost. Using

limit orders,

market orders,

you can buy closer to the bid and sell closer to the ask; thus you can avoid much or all of the bid-ask spread as a transaction