Question

Jorge, a trader, wants to buy 1,000 shares of XYZ stock, while a second trader, Adele, is willing to sell 1,500 shares of the same stock. Unfortunately, Jorge and Adele don't know one another and must complete their transactions using the stock exchange's market-making dealer. What should be the most appropriate values in the following table:

A) Bid: 29.50, Ask: 45.75
B) Bid: 30.50, Ask: 29.50
C) Bid: 35.40, Ask: 30.50
D) Bid-ask: 99.25, 81.15

Answer 1

The most appropriate bid and ask values are option B: Bid: 29.50, Ask: 30.50, as this is the only scenario where the bid price is below the ask price, allowing for a potential transaction.

Step-by-step explanation:

In stock trading, the bid price represents the highest price a buyer is willing to pay for a stock, while the ask price is the lowest price at which a seller is willing to sell their shares. When Jorge wants to buy 1,000 shares of XYZ stock and Adele is willing to sell 1,500 shares, their transaction will occur at a price that is both within Jorge's buying range and Adele's selling range. This means the bid must be lower than the ask. Considering the options given, the most appropriate values in the table would be:

• Bid: 29.50
• Ask: 30.50

This scenario represents option B and is the only case where the bid price is less than the ask price, allowing the market-making dealer to potentially match the two orders.