Suppose Hewlett-Packard (HPQ) stock is currently trading on the NYSE with a bid price of $28.00 and
Question:
a. Is there an arbitrage opportunity in this case? If so, how would you exploit it?
b. Suppose the NASDAQ dealer revises his quotes to a bid price of $27.95 and an ask price of $28.05. Is there an arbitrage opportunity now? If so, how would you exploit it?
c. What must be true of the highest bid price and the lowest ask price for no arbitrage opportunity to exist?
Dealer
A dealer in the securities market is an individual or firm who stands ready and willing to buy a security for its own account (at its bid price) or sell from its own account (at its ask price). A dealer seeks to profit from the spread between the...
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a There is an arbitrage opportunity One would buy from th...View the full answer
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