Assume that you use a TD Ameritrade brokerage account and place your stock trades through the...

Assume that you use a TD Ameritrade brokerage account and place your stock trades through the Interactive Voice Response (IVR) Phone System, which charges a $34.99 commission per stock trade. You would like to sell $1,500 shares of Microsoft Corporation, which is listed on the Nasdaq stock exchange, so you check the real-time quotes through TD Ameritrade and see bid price of $57.31 and an ask price $57.33.
a. What is the current bid/ask spread for Microsoft?

b. If you place the sell order and TD Ameritrade routes the order to Microsoft’s listing exchange, what are your likely total transaction cost? (Hint: Nasdaq is a dealer market.)

Solutions

Expert Solution

a) Bid/Ask Spread = Ask Price - Bid Price = $57.33 - $57.31 = $0.02

b) transaction cost includes = $34.99 + .002*(1500*57.33) ; Assume per transaction cost via Nasdaq is .002 (Average)

=$34.99 + .002*85995 = $206.98 (likely transaction cost)

jeff jeffy answered 2 years ago

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