Two Stock Market Based Costs of Liquidity That Affects the Cost

question 6

Multiple Choice

Two stock market based costs of liquidity that affects the cost of capital are the:

• A) bid-ask spread and the specialist spread.
• B) market impact cost and the brokerage costs.
• C) investor opportunity cost and the brokerage costs.
• D) bid-ask spread and the market impact costs.

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Definitions:

Risk Neutral

An attitude or preference indicating indifference between choices with uncertain outcomes, focusing instead on the expected values.

Risk Averse

A characteristic of preferring to avoid risk, inclining towards guaranteed outcomes over potentially higher-yielding but uncertain ones.

Income

The accumulation of funds, characteristically on a habitual basis, through work or investing.

Von Neumann-Morgenstern

A theory of expected utility that describes how rational individuals choose among uncertain prospects, emphasizing the maximization of utility for decision-making under uncertainty.