P5-22) An investor pays $101 to buy a share of zenotrop stock. simultaneously a

Question

P5-22) An investor pays $101 to buy a share of zenotrop stock. simultaneously a different investor sells one share of zenotrop and received $100 in cash. at the moment that these trades took place. what were the bid and ask prices of zenotrop stock?
A. Bid price = $101; ask price = $100.
B. Bid price = $100; ask price = $101.

P6-11) the nominal return on a particular investment is 11% and inflation rate is 1%, what is the nominal rate of return on the bond?
What is the real return?
A. 8%
B. 8.82%
C. 9%
D. 13%

P6-12) A bond offers a real return of 5%. If investors expect 3% inflation, what is the nominal rate of return on the bond?
A. 8%
B. 8.15%
C. 8.50%
D. 9%

Explanation / Answer

1.

The correct answer is option B.

Bid is the indicator of willingness to buy the security and that is $100 and Ask id the indicator of willingness to sell the security.

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