Transaction costs  In late December you decide to sell a losing position that you hold in Twitter so you can capture the loss and use it to offset some capital​ gains, thus reducing your taxes for the current year.​ However, since you believe that Twitter is a good​ long-term investment, you wish to buy back your position in February next year. You call your Charles Schwab brokerage account manager and request that he sell your

1 comma 1001,100

shares of Twitter and buy them back in February. Charles Schwab charges a commission of

​$2525

for​ broker-assisted trades.

a. Suppose that your total transaction costs for selling the

1 comma 1001,100

shares of Twitter in December were

​$45.0045.00.

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 comma 1001,100

shares of Twitter were

​$40.2040.20.

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?

Question content area bottom

Part 1

a. The​ bid/ask spread for​ Twitter, at the time your trade was​ executed, is

​$enter your response here.

​ (Round to four decimal​ places.)

Part 2

b. Given that Twitter is listed on the​ NYSE, do your total transaction costs for December seem​ reasonable? Explain why or why not.

​"Twitter is listed on the​ NYSE, a broker market.​ So, had Charles Schwab routed the order to the​ NYSE, it could have been executed against a buy​ order, and total transaction costs would have been only the

​$2525

brokerage commission. But transaction costs included half the​ bid/ask spread per share​ traded, so​ either: (i) the order went to the​ NYSE, no public buy order was​ available, and the market maker bought the

1 comma 1001,100

shares for her inventory​ (at a cost of half the​ bid/ask spread per​ share) or​ (ii) Charles Schwab routed the order to a dealer market like​ NASDAQ, and a market maker added the shares to her inventory​ (at half the spread per​ share)."

This statement is

▼   true

false

.

​ (Select the best answer from the​ drop-down menu.)

Part 3

c. The​ bid/ask spread for​ Twitter, at the time your trade was​ executed, is

​$enter your response here.

​(Round to four decimal​ places.)

Part 4

d. Your total​ round-trip transaction costs for both selling and buying the shares is

​$enter your response here.

​(Round to the nearest​ cent.)

Part 5

What could you have done differently to reduce the total​ costs?  ​(Select the best answer​ below.)

A.

Costs could have been reduced by placing both trades online with a request for routing to the NYSE where the chance of crossing with other public orders is greatest.

B.

Costs could have been reduced by placing both trades with a market maker.

The bid/ask spread for Twitter, at the time your trade was executed, is $(Round to four decimal places.)This statement is(Select the best answer from the drop-down menu.)The bid/ask spread for Twitter, at the time your trade was executed, is $(Round to four decimal places.)Your total round-trip transaction costs for both selling and buying the shares is $(Round to the nearest cent.))