A narrow bid-asked spread on a security can be expected if
A) price fluctuations are large.
B) liquidity costs are high.
C) transactions volume is large.
D) the market is thin.

Question

Quizplus · Accepted Answer

A narrow bid-asked spread on a security can be expected if the transaction volume is large. When trading volume is high, there are many buyers and sellers in the market, increasing liquidity and competition, resulting in a narrower bid-ask spread. This means that there is a higher chance of finding a buyer or seller at a more favorable price, reducing the bid-ask spread. The other options are incorrect, as larger price fluctuations, high liquidity costs, and thin markets all lead to wider bid-ask spreads.

A Narrow Bid-Asked Spread on a Security Can Be Expected