A purchaser of stock from a market-maker in that stock can expect to pay:

A purchaser of stock from a market-maker in that stock can expect to pay:

• A. no markup
• B. a markup and a commission
• C. a markup
• D. a commission

Answer: (C)

When purchasing stock from a market-maker, a purchaser can expect to pay a markup. Market-makers facilitate the buying and selling of stocks by providing liquidity in the market and are allowed to earn a profit on the transactions they facilitate. This profit is typically realized through a markup on the price at which they sell securities. A markup is the difference between the price at which the market-maker buys the stock and the price at which they sell it to the purchaser. This markup compensates the market-maker for the risks they take by holding inventories of stocks and for the services they provide in making trades possible. Since the market-maker buys and sells directly in the market, they do not charge an additional commission separately; the markup effectively serves that purpose. This understanding of the functions of market-makers and the nature of stock transactions clarifies why a purchaser can expect to pay a markup rather than a commission or a combination of both.

When purchasing stock from a market-maker, a purchaser can expect to pay a markup. Market-makers facilitate the buying and selling of stocks by providing liquidity in the market and are allowed to earn a profit on the transactions they facilitate. This profit is typically realized through a markup on the price at which they sell securities.

A markup is the difference between the price at which the market-maker buys the stock and the price at which they sell it to the purchaser. This markup compensates the market-maker for the risks they take by holding inventories of stocks and for the services they provide in making trades possible. Since the market-maker buys and sells directly in the market, they do not charge an additional commission separately; the markup effectively serves that purpose.

This understanding of the functions of market-makers and the nature of stock transactions clarifies why a purchaser can expect to pay a markup rather than a commission or a combination of both.