Question

If the market maker is willing to purchase the entire block of 1,500 shares from Amara and, from that block, resell 1,000 shares to Brent, then the market maker’s net profit from Brent’s transaction—excluding any inventory effects—will be

Answer 1

Answer:

$1,300

Explanation:

Calculation to determine what the market maker’s net profit from Brent’s transaction

First step is to calculate the bid-ask spread using this formula

Bid-ask spread=Ask price-Bid price

Let plug in the formula

Bid-ask spread=$31.80-$30.50

Bid-ask spread=$1.30

Now let calculate the Net profit

Using this formula

Net profit=Bid-ask spread*Shares resell

Net profit=$1.3 x 1000 shares

Net profit=$1,300

Therefore the market maker’s net profit from Brent’s transaction will be $1,300