Question

You find that the bid and ask prices for a stock are $10.25 and $10.30, respectively. If you purchase or sell the stock, you must pay a flat commission of $7 (per trade). If you buy 100 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars

Answer 1

$19

Step-by-step explanation:

Total cost = number of share *(ask price - bid price) + purchase cost + sell cost.

Number of shares = 100

Ask price = 10.30

Bid price = 10.25

Purchase cost = $7

Sell cost = $ 7

When we put these values into the formula, we have;

100(10.30-10.25)+7 +7

= 100*0.05 +14

= $19

$19 is your total implied and actual transaction cost .

Thank you