You want to buy a stock. There are man dealers you can buy it from, so you lok at their bid-ask spreads. hich dealer do you prefer?
A) Dealer 5: 88-91
B) Dealer 1: 90-93
C) Dealer 3: 91-92
D) Dealer 4: 88-94
E) Dealer 2: 89-90
To determine which dealer is the preferred choice, you need to consider the bid-ask spreads offered by each dealer. The bid-ask spread represents the difference between the highest price a dealer is willing to pay (bid) and the lowest price at which they are willing to sell (ask).
In general, a smaller bid-ask spread is desirable because it indicates a smaller difference between the buying and selling price. A smaller spread means that you can potentially buy the stock at a lower price and sell it at a higher price, maximizing your potential profit.
Let's compare the bid-ask spreads of each dealer:
A) Dealer 5: 88-91 - The spread is 3 (91-88).
B) Dealer 1: 90-93 - The spread is 3 (93-90).
C) Dealer 3: 91-92 - The spread is 1 (92-91).
D) Dealer 4: 88-94 - The spread is 6 (94-88).
E) Dealer 2: 89-90 - The spread is 1 (90-89).
Based on the bid-ask spreads provided, Dealer 3 (91-92) offers the smallest spread of 1. Therefore, Dealer 3 would be the preferred choice as it provides the opportunity for a narrower price difference between buying and selling the stock.