Transaction costs 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 a bid price of $57.31 and an ask price of $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 costs? (Hint: Nasdaq is a dealer market.)
- c. What are your total transaction costs if the Nasdaq dealer who receives your order decides to act as broker and allows a public order to buy 1,500 shares of Microsoft to satisfy your order?
- d. Regardless of how your trade is executed, based on the bid/ask spread what is the market value of your trade?
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