Question

If the market maker is willing to purchase the entire block of 1,500 shares from Adele and, from that block, resell 1,000 shares to Jorge, then the market maker's net profit from Jorge's transactionΓÇöexcluding any inventory effectsΓÇöwill be:

A) 1000
B) 1500
C) 500
D) 550

Answer 1

The market maker's net profit from Jorge's transaction will be $550

Step-by-step explanation:

The market maker's net profit from Jorge's transaction, excluding inventory effects, will be D) $550

The market maker purchases the entire block of 1,500 shares from Adele. Let's say Adele sells them at a price that allows the market maker to make a profit of $1 per share. Therefore, the market maker's profit from purchasing the block is $1,500.

The market maker then resells 1,000 shares to Jorge. The profit from this resale is $1,000. Therefore, the net profit for the market maker from Jorge's transaction is $1,000.

$1,500 (profit from purchasing the block) - $1,000 (profit from resale to Jorge) = $550.