Explanation:

The correct answer is C.

Transaction costs = ±P × $\frac{1}{2}$ (s + 2.33σ)

Where
P = midprice
S = expected bid-ask spread

P = $\frac{\text{Bid price + Ask price}}{2}$ = $\frac{20.2 + 20.35}{2}$ = $20.275

S = $\frac{\text{Ask price - Bid price}}{\text{Midprice}}$ = $\frac{20.35 - 20.20}{20.275}$ = $0.0074$

Thus,
Transaction costs = ±20.275 × $\frac{1}{2}$ (0.0074 + 2.33 × $0.0003 $) = `$ 0.08`21

Q.2731 The shares of a company currently trade at a bid/ask rate of `$20.20` and `$20.35`. If the sample standard deviation of the spread is `$0.00`03, what will be the expected transaction cost assuming a 99% confidence interval on transaction cost?

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Last updated: July 5, 2026 at 07:08

$0.321

$0.075

$0.082

$0.821

Financial Risk Manager Part 2