Calculate the quoted bid-ask spread and the relative quoted bid-ask spread.  Report both of your results to four decimal places.
2.
Describe the main weaknesses of using the quoted spread for estimating transaction costs.
3.
Consider the information at Question 1 (the picture). Now, assume that an investor sells 100 shares for $10.07 per share.  Calculate the investor's effective spread.  Report your answer to four decimal places.

4.
How does the effective spread overcome some of the weaknesses of the quoted spread for estimating transaction costs?

 

Transcribed Image Text:

Buy Volume 4,500 1,000 10,000 9,000 3,000 Price 10.09 10.07 10.06 10.05 10.04 10.02 10.01 10.00 Sell Volume 4,000 Buy Volume 4,500 1,000 10,000 9,000 3,000 Price 10.09 10.07 10.06 10.05 10.04 10.02 10.01 10.00 Sell Volume 4,000

Answer rating: 100% (QA)

Answer To calculate the quoted bidask spread we need the bid price and the ask price However the information provided in the question does not include the bid and ... View the full answer