(3 marks, difficulty level: Easy) The following quotes were observed for Buffin Corp.Buffin Corp. (ticker: BUFN) on the two dates indicated. Suppose you decide to use a market order to buy 500 shares of BUFN on September 14 and then sell the 500 shares using a market order on September 15. Assuming no brokerage commissions, what gain or loss did you make?

Buffin Corp. BUFN

September 14

September 15

Bid

$13.50

$14.55

Ask

$13.60

$14.64

Question

(3 marks, difficulty level: Easy) The following quotes were observed for Buffin Corp.Buffin Corp. ​(ticker: BUFN​) on the two dates indicated. Suppose you decide to use a market order to buy 500 shares of BUFN on September 14 and then sell the 500 shares using a market order on September 15. Assuming no brokerage​ commissions, what gain or loss did you ​make?

Buffin Corp. BUFN

September 14

September 15

Bid

$13.50

$14.55

Ask

$13.60

$14.64

BlackTom AI · Accepted Answer

To tackle this problem, I’ll walk through how market orders and the given quotes translate into an actual gain or loss.
First, determine the execution prices for both sides of the trade. On September 14, a market order to buy 500 shares would be filled at the ask price shown that day, which is 13.60. The total cost would be 500 × 13.60 = 6,800 dollars.
Next, on September 15, a market order to sell 500 shares would be filled at the bid price shown that day, which is 14.55. The total proceeds would be 500 × 14.55 = 7,275 dollars.
Now compute the net result: proceeds minus cost equals 7,275 − 6,800 = 475 dollars, which is a gain.
Let's examine each answer choice:
- 'losing $570': This would imply a loss of 570, which could arise if the sell price was much lower or buy price much higher than the actual prices used. However, we used the correct buy price (13.60) and correct sell price (14.55), and that results in a gain, not a loss.
- 'gaining $570': This is close to the difference in per-share terms (14.55 − 13.60 = 0.95 per share) times 500 shares equals 0.95 × 500 = 475, not 570. The miscalculation likely stems from one of the two legs or a misapplied per-share difference.
- 'losing $475': This would occur if the selling proceeds were less than the cost by 475, which would require either a higher buy price or a lower sell price than the given quotes. The actual combination yields a gain, not a loss.
- 'gaining $475': This matches the per-share gain of 0.95 dollars per share times 500 shares = 475, using buy at 13.60 and sell at 14.55. The math aligns with market-order execution on the provided quotes.
In summary, by using the ask price for the buy on September 14 and the bid price for the sell on September 15, the trade results in a positive 475 dollars. The incorrect options either misstate the direction of the result or miscalculate the magnitude based on the given quotes.

FINE 2000 A, B & C Mock Exam-Midterm F2025- Requires Respondus LockDown Browser

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