Question

Consider the following limit-order book for a share of stock. The last trade in the stock occurred at a price of $83.

Limit Buy Orders				Limit Sell Orders
Price			Shares	Price			Shares
$	82.75		500	$	83.25		100.00
	82.50		600		83.50		200.00
	82.25		500		86.75		300.00
	82.00		300		90.25		100.00
	81.50		700

A.If a market buy order for 100 shares comes in, at what price will it be filled?

B. At what price would the next market buy order be filled?

C. If you were a security dealer, would you want to increase or decrease your inventory of this stock?

Answer 1

A. $83.25

The order for 100 shares will be filled at $83.25 because that is the best and lowest sell order price.

B. $83.50

The next buy order will be filled at $83.50 because that is the next best and lowest sell order price.

C. Increase

If I were a security dealer, I would like to increase the inventory of this stock because at present the prices seem to be on the low and have a chance of increasing in the future.

However, this decision may differ from person to person.