The bid-asked spread is likely to be greater on securities that are
A) issued in larger denominations.
B) have low market risk.
C) less liquid.
D) traded in a deep market.

Question

Quizplus · Accepted Answer

The bid-asked spread is typically wider on securities that are less liquid, meaning they are traded less frequently and have fewer buyers and sellers in the market. This is because there is a higher risk for investors to invest in these securities, and so to incentivize more investors to participate in the market, the spread may need to be wider in order to compensate for this risk. Securities issued in larger denominations or traded in deep markets may have narrower spreads because there is more liquidity and less risk involved, and securities with low market risk may have narrower spreads because they are perceived to be less risky investments.

The Bid-Asked Spread Is Likely to Be Greater on Securities