Question

The (transaction) cost of buying and selling a stock includes:

I. Broker's commissions
II. Dealer's bid-asked spread
III. Price concessions that investors may be forced to make when investors need to sell a large amount of stocks quickly (i.e., so-called "price impact" due to illiquidity).
a.I only
b.II only.
c.III only.
d.I, II, and III

Answer 1

The transaction cost of buying and selling a stock includes broker's commissions, dealer's bid-asked spread, and price concessions due to illiquidity.

Step-by-step explanation:

The (transaction) cost of buying and selling a stock includes:

Broker's commissions

Dealer's bid-asked spread

Price concessions that investors may be forced to make when investors need to sell a large amount of stocks quickly (i.e., so-called "price impact" due to illiquidity)

The correct answer is d.I, II, and III. All three options contribute to the transaction cost of buying and selling a stock.