Question

In late December you​ decide, for tax​ purposes, to sell a losing position that you hold in​ Twitter, which is listed on the​ NYSE, so that you can capture the loss and use it to offset some capital​ gains, thus reducing your taxes for the current year.​ However, since you still believe that Twitter is a good​ long-term investment, you wish to buy back your position in February the following year. To get this done you call your Charles Schwab brokerage account manager and request that he immediately sell your 1 comma 200 shares of Twitter and then in early February buy them back. Charles Schwab charges a commission of ​$4.95 for online stock trades and for​ broker-assisted trades there is an additional ​$25 service​ charge, so the total commission is ​$29.95.
a. Suppose that your total transaction costs for selling the 1,400 shares of Twitter in December were $59.95. What was the bid/ask spread for Twitter at the time your trade was executed?
b. Given that Twitter is listed on the NYSE, do your total transaction costs for December seem reasonable? Explain why or why not.
c. When your February statement arrives in the mail, you see that your total transaction costs for buying the 1,400 shares of Twitter were $47.95. What was the bid/ask spread for Twitter at the time your trade was executed?
d. What are your total round-trip transaction costs for both selling and buying the shares, and what could you have done differently to reduce the total costs?

Answer 1

Answer:

a. The Bid/Ask spread is $0.03.

b. The statement is “False”.

c. The Bid/Ask spread at the time trade was executed is $0.02.

d. The Total Round-Trip Transaction Costs is $107.90 and the Bid/Ask spread is $0.09. It is important to have a lower commission charge. So the correct statement is “Statement C”.

Explanation:

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