1. Martin Corp. stock has a bid price of $38.10 and an ask price of $38.35. Assu
ID: 2616679 • Letter: 1
Question
1. Martin Corp. stock has a bid price of $38.10 and an ask price of $38.35. Assume there is a $19 brokerage commission per trade. What is your round-trip transaction cost if you buy 100 shares and then immediately sell 100 shares?
A) $44
B) $63
C) $13
D) $25
E) $6
1 points
2) Suppose a security has a bid price of $39.50 and an ask price of $39.80. At what price can you sell the security to a market-maker?
A) $39.65 ( the average of $39.50 and $39.80)
B) At any price between $39.50 and $39.80
c) $39.80
D) $39.50
3) Suppose a security has a bid price of $41.32 and an ask price of $41.60. What is the spread in dollar terms when 300 shares are traded?
A) $12,396
B) $12,480
C) $168
D) $84
E) $42
4) Suppose you short-sell 300 shares of AmCo stock at $53.84 with a commission charge of 0.5%. Assuming you also pay commission charges for purchasing the stock to cover the short sale, how much profit have you made if you close the short sale at a price of $52.47?
A) $268.31
B) $251.54
C) $408.95
D) $570.47
E) $411.00
5)Suppose you short-sell 100 shares of a stock when it has a bid price of $79.32 and an ask price of $79.52. You cover the short position 1 year later when the bid price is $78.90 and the ask price is $79.02. Taking into account only the bid and ask prices (ignoring commissions and interest), what profit did you earn?
A) $33
B) $30
C) $46
D) $62
E) $42
2) Suppose a security has a bid price of $39.50 and an ask price of $39.80. At what price can you sell the security to a market-maker?
A) $39.65 ( the average of $39.50 and $39.80)
B) At any price between $39.50 and $39.80
c) $39.80
D) $39.50
3) Suppose a security has a bid price of $41.32 and an ask price of $41.60. What is the spread in dollar terms when 300 shares are traded?
A) $12,396
B) $12,480
C) $168
D) $84
E) $42
4) Suppose you short-sell 300 shares of AmCo stock at $53.84 with a commission charge of 0.5%. Assuming you also pay commission charges for purchasing the stock to cover the short sale, how much profit have you made if you close the short sale at a price of $52.47?
A) $268.31
B) $251.54
C) $408.95
D) $570.47
E) $411.00
5)Suppose you short-sell 100 shares of a stock when it has a bid price of $79.32 and an ask price of $79.52. You cover the short position 1 year later when the bid price is $78.90 and the ask price is $79.02. Taking into account only the bid and ask prices (ignoring commissions and interest), what profit did you earn?
Explanation / Answer
(1) The buyer buys 100 shares at the asking rate of $ 38.35 per share and sells the same 100 shares at the bid rate of $ 38.1 per share, incurring brokerage commissions of $ 19 per trade.
Therefore, loss in buy-sale transaction = (38.1 - 38.35) x 100 = - $ 25
Brokerage Commission = $ 19 (for buy) + $ 19 (for sale) = $ 38
Total Transaction Cost = Loss in buy-sale transaction + total brokerage commission = 25 + 38 = $ 63
Hence, the correct option is (B).
NOTE: Please raise separate queries for solutions to the remaining unrelated questions.
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