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

Answer 1

(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.