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Transaction costs In late December you decide to sell a losing position that you hold in Twitter so you can capture the loss and use it to offset some capital gains, thus reducing your taxes for the current year. However, since you believe that Twitter is a good long-term investment, you wish to buy back your position in February next year. You call your Charles Schwab brokerage account manager and request that he sell your 1,200 shares of Twitter and buy them back in February. Charles Schwab charges a commission of $25 for broker-assisted trades. a. Suppose that your total transaction costs for selling the 1,200 shares of Twitter in December were $45.00. What was the bid/ask spread for Twitter at the time your trade was executed? b. Given that Twitter is listed on the NYSE, do your total transaction costs for December seem reasonable? Explain why or why not. c. When your February statement arrives in the mail, you see that your total transaction costs for buying the 1,200 shares of Twitter were $40.20. What was the bid/ask spread for Twitter at the time your trade was executed? a. The bid/ask spread for Twitter, at the time your trade was executed, is $ (Round to four decimal places.) b. Given that Twitter is listed on the NYSE, do your total transaction costs for December seem reasonable? Explain why or why not. it could have been executed against a buy order, and total transaction costs would have been only the $25 brokerage commission. But transaction costs included half the bid/ask spread per share traded, so either: (i) the order went to the NYSE, no public buy order was available, and the market maker c. The bid/ask spread for Twitter, at the time your trade was executed, is $. (Round to four decimal places.) d. Your total round-trip transaction costs for both selling and buying the shares is $ (Round to the nearest cent.) What could you have done differently to reduce the total costs? (Select the best answer below.) A. Costs could have been reduced by placing both trades online with a request for routing to the

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