Homework SourseConsider the following limit order book for a share of stock
Consider the following limit order book for a share of stock. The last trade in the stock occurred at a price of $55.
a. If a market buy order for 150 shares comes in, at what price will it be filled? (Round your answer to 2 decimal places.)
Best price $
b. At what price would the next market buy order be filled? (Round your answer to 2 decimal places.)
Next best price $
c. If you were a security dealer, would you want to increase or decrease your inventory of this stock?
| Limit Buy Orders | Limit Sell Orders | |||
| Price | Shares | Price | Shares | |
| $54.75 | 400 | $55.25 | 150 | |
| 54.50 | 700 | 56.50 | 150 | |
| 54.25 | 400 | 59.75 | 300 | |
| 54.00 | 200 | 63.25 | 150 | |
| 53.50 | 500 | |||
Solution
(a) $55.25
market buy order means the buyer is ready to buy at price which seller is ready to offer
(b) $56.50
(c ) increase
this is because, we see sellers are very few, it may increase further. There is considerable buying demand at prices just below $55, indicating that downside risk is limited. In contrast, limit-sell orders are sparse,indicating that a moderate buy order could result in a substantial price increase
