You want to buy a share of Acme Corp. stock. Your on-line broker shows a bid price of $30, and has a bid-ask spread of $.50. Assuming you buy “at the market” (i.e., at the prices currently quoted) how much will you pay for a share of the stock? How much will the seller of each share that you buy receive? Explain.
Dude, you're in my class at Harvard.
HAHA.. Having trouble with this one
To determine how much you will pay for a share of Acme Corp. stock and how much the seller will receive, let's break down the information provided.
1. Bid Price: The bid price is the highest price that buyers are willing to pay for the stock. In this case, the bid price is $30.
2. Bid-Ask Spread: The bid-ask spread represents the difference between the highest price a buyer is willing to pay (the bid price) and the lowest price a seller is willing to accept (the ask price). The spread in this case is $0.50.
Given this information, we can calculate the ask price, which is the bid price plus the spread:
Ask Price = Bid Price + Spread
Ask Price = $30 + $0.50
Ask Price = $30.50
Since you are buying the stock "at the market," you are willing to pay the current ask price. Therefore, you will pay $30.50 for a share of Acme Corp. stock.
Now, let's determine how much the seller will receive. As mentioned earlier, the ask price is the lowest price the seller is willing to accept. So, when you buy a share of the stock at the ask price of $30.50, the seller will receive that amount for each share sold.
In summary, you will pay $30.50 for a share of Acme Corp. stock, and the seller will receive $30.50 for each share you buy.