
Explanation:
The mid-market price for shares is $80.6 \times 50 = `
The proportional bid-offer spread for the share is
We let the proportional bid-offer for the share be , and the offer price be
Then
, which is the proportional bid-offer price for the commodity
Thus
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Q.3940 Cathleen Wilson is the liquidity manager for CPR bank. She decides to invest in 50 million shares of one company and 20 million ounces of a commodity. Assume that the shares’ bid price is $80.4, offer price $80.8, and the commodity’s bid is $30.6. However, she is not able to remember the commodity’s offer price. Given the cost of liquidation for the portfolio to be $12.0 million and the mid-market position in the commodity to be $614 million, calculate the offer price for the commodities in a normal market.
A
30.8
B
31.6
C
34.6
D
28.9
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