Question

Consider the following limit order book for FinTrade stock. The last trade in the stock occurred at a price of $50. (9) LO 3-3) 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?

Previous question

Answer 1

a) The market buy order for 100 shares will be filled at $50 per share. b) The next market buy order will also be filled at $50 per share. c) As a security dealer, you would want to increase your inventory of this stock by buying more shares.

Step-by-step explanation:

The questions can be answered as -

a. If a market buy order for 100 shares comes in, it will be filled at the best available ask price in the limit order book. In this case, the best ask price is $50, so the market buy order will be filled at $50 per share.

b. The next market buy order would also be filled at the best available ask price in the limit order book. Assuming the ask prices remain the same, the next market buy order would also be filled at $50 per share.

c. As a security dealer, if you want to increase your inventory of this stock, you would want to buy more shares. This means you would want the market buy orders to be filled at lower prices, so that you can purchase the shares at a lower cost and potentially sell them at a higher price for a profit.