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Assume that the speed of light is infinite. Suppose the limit order book for a relatively illiquid stock is the following at 10:000 (ten hours, zero...

Assume that the speed of light is infinite. Suppose the limit order book for a relatively

illiquid stock is the following at 10:00:00:000 (ten hours, zero minutes, zero seconds, zero

milliseconds):

Price Quantity Price Quantity

\$7.72 9 \$7.68 2

\$7.75 2 \$7.65 7

\$8.00 5 \$7.50 8

\$10.00 120 \$6.00 40

\$20.00 100 \$5.00 200

(a) What would be the average price paid per share for a hypothetical market buy order

for 11 shares under the limit order book shown above

Average price paid per share:

(b) You still did not submit any order. A market buy order for 150 shares from another

trader is submitted and executed at 10:00:00:100. How does the order book look like at

10:00:00:101 (i.e., immediately after this market buy order for 150 shares is executed)

Price (\$) Quantity Price (\$) Quantity

(c) The proverbial blink of an eye takes around 300ms. Unfortunately, you start blink-

ing at 10:00:00:000 and thus miss the change in the limit order book from part (b). At

10:00:00:200, you casually press the "Enter" key and place a market order to buy 11

shares, which is immediately executed. Note that your order is executed after the market

buy order for 150 shares from the other trader. At 10:00:00:300 (i.e., when you reopen

What number do you see on the screen

Average price paid per share:

(d) Let's now consider what would have happened if instead of placing the market buy

order for 11 shares from part (c), you had placed a limit buy order at 10:00:00:200. How

would the order book would have looked immediately after you submitted a limit order

to buy 11 shares with a limit price of \$7.75 per share (again, instead of the market buy

order for 11 shares)? Note that your limit buy order is still placed after the execution of

Price (\$) Quantity Price (\$) Quantity

(a) Average price paid per... View the full answer

1 comment
• The answer is not showing the spaces. The last four rows of (b) and (d) actually relates to Bids and not Asks. Thank you.
• Inderr7862
• Aug 08, 2018 at 5:32pm

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