Assume that a financial institution (FI) has purchased 3,500 shares of AB and 7,500 shares of CD. The share's AB current bid and offer are £48.5 and £50.1 respectively while the share's CD current bid and offer are £101.1 and £101.5 respectively. Suppose further that the bid-offer spreads are normally distributed with a mean and a standard deviation of 1% for AB and with a mean of 3% and a standard deviation of 4% for CD.

a) Which of the two shares (AB and CD) has the higher cost in terms of execution? Explain

b) Calculate the cost of liquidation in a normal market

c) Calculate the cost of liquidation in a stressed market at a 95% confidence level. Using your answers to (b), what do you observe?