Explanation:
The liquidation cost in a normal market is calculated as half of the bid-ask spread multiplied by the number of units held.
For the shares:
Spread = $92.4 - $90.8 = $1.6.
Cost = 0.5 * $1.6 * 25 million = $20.0 million.
For the commodity:
Spread = $26.2 - $24.0 = $2.2.
Cost = 0.5 * $2.2 * 35 million = $38.5 million.
Total liquidation cost = $20.0 million + $38.5 million = $58.5 million. This closely matches option B ($58.49 million, assuming a tiny rounding difference depending on whether precise proportional calculation was employed).
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Q.72 Suppose that the liquidity division in QPR bank has bought 25 million shares of one company and 35 million ounces of a commodity. Assume that the shares are bid $90.8, offer $92.4, and the commodity is bid $24, offer $26.2. Calculate its liquidation cost in a normal market.
A
$45.67 million
B
$58.49 million
C
$23.56 million
D
$32.08 million
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