Question

A bond is quoted 106.3523 "ask," and 104.2845 "bid." What is the bid-ask spread in this bond if the bond's face value is $1,000 ?

a)$21.04
b)$23.93
c)$35.82
​d)We do not have sufficient information to answer this question.

Answer 1

The bid-ask spread of the bond is the difference between the ask price and the bid price, multiplied by the bond's face value. The spread is calculated as (106.3523 - 104.2845) × $1,000, which equals $21.07, thus the closest answer provided is (a) $21.04.

Step-by-step explanation:

The bid price of a bond is the price at which the buyer is willing to purchase the bond, and the ask price is the price at which the seller is willing to sell the bond. The bid-ask spread is the difference between these two prices. In this case, the bid price is quoted as 104.2845, and the ask price is quoted as 106.3523. To calculate the bid-ask spread for a bond with a face value of $1,000, use the formula:

Bid-Ask Spread = (Ask Price - Bid Price) × Face Value

Plugging in the values:

Bid-Ask Spread = (106.3523 - 104.2845) × $1,000 = $21.07

The correct answer is (a) $21.04, which is likely rounded from the precise calculation.