Explanation:
Since the mid-market value of the position in shares is $2,506 million, W, the number of shares, can be calculated as follows:
Thus
The mid-market value of the position in the commodity = $46.9 \times 19 = ` million
The proportional offer spread for the commodity is , while the proportional bid-offer spread for the share is;
Then the cost of liquidation in a normal market;
\frac{0.03352 \times 2,506}{2} + \frac{0.01279 \times 891.1}{2} = \`$47.69`9 \text{ million}Ultimate access to all questions.
Q.3945 Richard Watson, the liquidity manager of RTC bank, has been finding ways of boosting the liquidity for the bank. He decides to invest in W shares of one company and 19 million ounces of a commodity. Assume that the shares are bid $70.4, offer $72.8, and the commodity is bid is $46.6, offer $47.2. The mid-market value of the position in shares is $2,506 million. Calculate, W, the number of shares, and the cost of liquidation in a normal market.
A
35 million and $47.699
B
37 million and $42.076
C
20 million and $65.000
D
17 million and $34.985
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