You are among the OTC market makers in the stock of Bio-Engineering, Inc. and quote a bid of $102.25 and an ask of $102.50. Suppose that you have a zero inventory. (a) On Day 1 you receive market buy orders for 10,000 shares and market sell orders for 4,000 shares. How much do you earn on the 4,000 shares that you bought and sold? What is the value of your investment?

$1000, $613,500

Explanation:

Given: Bid Rate : $102.25

            Ask Rate : $102.5

            Order executed: $4000

Ask price $ 102.5 for 4000 shares = 4000 × 102.5 = $410,000

Bid price $102.25 for 4000 shares = 4000 × 102.25= $409,000

Profit = Sales - Cost price =  $410,000 - $409,000 = $1,000

Thus, earnings on 4000 shares bought and sold = $1,000

Value of investment = Value of remaining purchased shares which were not sold

= 6000 shares × 102.25=  $613,500

The above valuation of investment is based upon bid price i.e cost price

Bid price refers to the buying rate and ask price refers to the selling rate. Profit is the difference between bid rate and the ask rate.

answerangel investor;

answer loneliness;