SIE Exam Question 53: Answer and Explanation

Question: 53

A stop limit order to sell 100 shares of ABC Corporation (ABC) stock at $35 is entered when the current market price of ABC stock is $45. The company announces lower-than-expected earnings and the stock price falls dramatically. Under which of the following scenarios will the order not execute?

  • A. The market price immediately falls to $35 and then rebounds to trade between $35 and $36 before falling below $35 again.
  • B. The market price immediately falls to $35 and continues to fall without rebounding.
  • C. The market price immediately falls to $35 and continues to trade between $33 and $36.
  • D. The market price immediately falls to $35 and continues to trade between $35 and $37.

Correct Answer: B

Explanation:

When the market price of ABC stock hits $35, the stop has been met and the order turns into a limit order to sell at $35 or higher. Since the market price continued to fall and stayed below $35, the limit order did not execute. In answers A, C, and D, the market price rose above the limit order price of $35. Therefore, those orders would execute.

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