You find that the bid and ask prices for a stock are $11.75 and $12.50, respectively. If you purchase or sell the stock, you must pay a flat commission of $15. If you buy 200 shares of the stock and immediately sell them, what is your total implied and actual transaction cost in dollars?

a. $15

b. $180

c. $165

d. $30

b. $180

Explanation:

In the stock market the bib price is the price at which you buy shares, while the ask price is the price at which shares are sold. The cost of the transaction is the amount incurred by the buyer when he buys and sells immediately.

Transaction cost = 200 (Ask price-Selling price) + 2 (Commision)

Transaction cost = 200 (12.5-11.75) + 2 (15)

Transaction cost = 200 (0.75) + 30

Transaction cost = $180