You find that the bid and ask prices for a stock are $14.25 and $15.45, respecti

Question

You find that the bid and ask prices for a stock are $14.25 and $15.45, respectively. If you purchase or sell the stock, you must pay a flat commission of $30. If you buy 100 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars?

$60

$150

$180

$30

You find that the bid and ask prices for a stock are $14.25 and $15.45, respectively. If you purchase or sell the stock, you must pay a flat commission of $30. If you buy 100 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars?

Explanation / Answer

$150

We can purchase shares at 15.45 and sell them @14.25. Thus we will incur loss of 1.20(15.45 -14.25) if we transact 1 share

$150

We can purchase shares at 15.45 and sell them @14.25. Thus we will incur loss of 1.20(15.45 -14.25) if we transact 1 share

If we transact 100 shares then loss would be 1.2*100 = 120 Fixed Cost (Comm) = 30 Total cost of transaction 100 shares would be = 120 +30 = $150

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