Fernando, a trader, wants to buy 1,000 shares of XYZ stock, while a second trade

Question

Fernando, a trader, wants to buy 1,000 shares of XYZ stock, while a second trader, Ally, is willing to sell 1,500 shares of the same stock. Unfortunately, Fernando and Ally don't know one another, and must complete their transactions using the stock exchange's market-making dealer. XYZ's market-maker is willing to sell her shares for $33.10 per share and purchase additional shares for $31.50 per share. Select the most appropriate values in the following table: Term Value Bid price Ask price Bid-ask spread If the market-maker is willing to purchase the entire block of 1,500 shares from Ally and, from that block, resell 1,000 shares to Fernando, then the market-maker's net profit from Fernando's transaction excluding any inventory effects-wl be

Explanation / Answer

Bid Prie is the price at which party is willing to purchase. Ask price is the price at which party is willing to sell. Term Value Bid price 31.5 Ask price 33.1 Bid-ask spread 1.6 net profit = $        1,600 (1,000 x $1.60) What should be the firms IPO Offer price Ans is b $51 Explanation: as per dutch auction prices of bidders from highest to lowest is considered and price is set at last successful bid offer price. In the present case shares exhausted at bid price of $51, so it will be ipo offer price 50000 $57 100000 55 150000 53 200000 51 Total 500000

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