Multiple Choice
If a firm evaluates all of its projects by applying the Internal Rate of Return (IRR) rule, which of the following statements is most accurate?
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7. Receivables and Investments
Introduction to Investments in Securities
Multiple Choice
Instructing your broker to buy or sell a stock at a particular price is a:
A
stop order
B
market order
C
limit order
D
short sale
Verified step by step guidance1
Understand the concept of a limit order: A limit order is an instruction to buy or sell a stock at a specific price or better. It ensures that the transaction occurs only at the desired price or a more favorable one.
Differentiate between the types of orders: A market order executes immediately at the current market price, while a stop order becomes a market order once a specified price is reached. A limit order, however, specifies the exact price for execution.
Analyze the problem statement: The question asks about instructing a broker to buy or sell a stock at a particular price. This aligns with the definition of a limit order, as it specifies a price for the transaction.
Clarify the incorrect options: A stop order triggers a market order when a specific price is reached, and a market order executes at the current price without specifying a particular price. A short sale involves selling borrowed shares, which is unrelated to the concept of specifying a price for buying or selling.
Conclude the reasoning: Based on the definitions and analysis, the correct answer to the problem is 'limit order,' as it matches the requirement of specifying a particular price for the transaction.
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