Consider the following limit order book for a share of stock. The last trade in

Question

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

Explanation / Answer

(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

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