QUESTION 2 (100 marks in total) I. Assume that a financial institution (FI) has purchased 3,500 shares of AB and 7,500 shares of CD. The shares AB current bid and offer are 48.5 and 50.1 respectively while the shares CD current bid and offer are 101.1 and 101.5 respectively. Suppose further that the bidoffer 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 [5 marks] b) Calculate the cost of liquidation in a normal market [20 marks] c) Calculate the cost of liquidation in a stressed market at a 95% confidence level. Using your answers to (b), what do you observe? [20 marks]