The reasons for bid-ask spread being a transaction cost. Introduction: A transaction cost is the aggregate cost of purchasing or trading an asset that includes commission, stamp duty and different expenses or applicable taxes. Generally, it is the procedural or incidental expenses of executing any business exchange.

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Chapter 1, Problem 16P

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To Determine: The reasons for bid-ask spread being a transaction cost.

Introduction:

A transaction cost is the aggregate cost of purchasing or trading an asset that includes commission, stamp duty and different expenses or applicable taxes. Generally, it is the procedural or incidental expenses of executing any business exchange.

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