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Shkiper50 [21]
3 years ago
6

David, a trader, wants to buy 1,000 shares of XYZ stock, while a second trader, Alexis, is willing to sell 1,500 shares of the s

ame stock. Unfortunately, David and Alexis don't know one another and must complete their transactions using the stock exchanges market-making deale. KYZS market maker is willing to sell her shares for $34.85 per share and purchase additional shares for $34 per share. Select the most appropriate values in the following table: Value Term Bid price Ask price Bid-ask spread If the market-maker is willing to purchase the entire block of 1,500 shares from Alexis and, from that block, resell 1,000 shares to David, then the market-maker's net profit from David's transaction-excluding any inventory effects-will be
Business
1 answer:
Mariana [72]3 years ago
7 0

Answer:

Market Maker's Net Profit = $850

Explanation:

David will buy the 1,000 shares he wished to buy at the Market Maker's sell price of $34.85 (since he is buying from the Market Maker).

Alexis, will sell her 1,500 shares to the Market Maker at the Market Maker's buy price of $34.

Therefore, excluding any inventory effect, the Market Maker's net profit from David's transaction

= sales price less purchase price

= (1,000 * 34.85) - (1,000 * 34) (the other 500 units the Market Maker purchased from Alexis will be in inventory and will not be considered)

= 34,850 - 34,000

= $850.

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