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Transaction costs In late December youdecide, for taxpurposes, to...

Transaction costs  In late December you​ decide, for tax​ purposes, to sell a losing position that you hold in​ Twitter, which is listed on the​ NYSE, so that you can capture the loss and use it to offset some capital​ gains, thus reducing your taxes for the current year.​ However, since you still believe that Twitter is a good​ long-term investment, you wish to buy back your position in February the following year. To get this done you call your Charles Schwab brokerage account manager and request that he immediately sell your 1 comma 100


1,100 shares of Twitter and then in early February buy them back. Charles Schwab charges a commission of ​$4.95


4.95 for online stock trades and for​ broker-assisted trades there is an additional ​$25


25 service​ charge, so the total commission is ​$29.95


29.95.

a. Suppose that your total transaction costs for selling the 1 comma 100


1,100 shares of Twitter in December were ​$59.95


59.95. What was the​ bid/ask spread for Twitter at the time your trade was​ executed?

b. Given that Twitter is listed on the​ NYSE, 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 comma 100


1,100 shares of Twitter were ​$47.95


47.95. What was the​ bid/ask spread for Twitter at the time your trade was​ executed?

d. What are your total​ round-trip transaction costs for both selling and buying the​ shares, and what could you have done differently to reduce the total​ costs?

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