Question

The bid-ask spread in a dealer market represents the profit that a dealer would make on a transaction involving a security. Which of the following statements best describes the bid-ask spread?

A. The difference between the price at which a dealer is willing to buy a security and the price at which a dealer is willing to sell it
B. The sum of the price at which a dealer is willing to buy a security and the price at which a dealer is willing to sell it
C. The difference between the closing price of the security and the opening price of the security on the day of the transaction

Answer 1

The statement that best describes the bid-ask spread is...

A. The difference between the price at which a dealer is willing to buy a security and the price at which a dealer is willing to sell it .

Step-by-step explanation:

The bid-ask spread is best explained as the difference between the bidding price and the asking price.

Let’s say that I’m looking to buy a security at the bidding price of $10 and the asking price is $10.50 if I it’s me that wants the security immediately, I'm going to have to pay the asking price not the bidding price, on the other hand if it’s the dealer who wants to sell instantly and immediately they're going to have to be paying the bidding price. The bid-ask spread of that basically is the 50 cent difference.