You find that the bid and ask prices for a share are $10.25 and $10.30 respectively. If you purchase or sell the share you must pay a flat commission of $25. If you buy 100 shares of the share and immediately sell them, what is your total implied and actual transaction cost in dollars?

Question

Quizplus · Accepted Answer

The implied transaction cost is the bid-ask spread, which is $0.05 per share. For 100 shares, this is $5. The actual transaction cost includes the commission for buying and selling, which is $25 each, totaling $50. Therefore, the total transaction cost is $5 (implied) + $50 (actual) = $55.

You Find That the Bid and Ask Prices for a Share