Two stock market based costs of liquidity that affects the cost of capital are the:
A) bid-ask spread and the specialist spread.
B) market impact cost and the brokerage costs.
C) investor opportunity cost and the brokerage costs.
D) bid-ask spread and the market impact costs.

Question

Quizplus · Accepted Answer

The bid-ask spread and market impact costs are two stock market-based costs of liquidity that affect the cost of capital. The bid-ask spread is the difference between the highest price a buyer is willing to pay (bid) and the lowest price a seller is willing to accept (ask). Market impact costs refer to the cost incurred due to the price movement caused by a trader's own buying or selling activity.

Two Stock Market Based Costs of Liquidity That Affects the Cost