Consider the following limit order book for a share of stock. The last trade in the stock occurred at a price of $90. Limit Buy Orders Limit Sell Orders
Price Shares Price Shares
$89.75 700 $89.80 125
89.70 1,000 89.85 125
89.65 700 89.90 350
89.60 200 89.95 125
88.65 800

Required:
a. If a market buy order for 125 shares comes in, at what price will it be filled?
b. At what price would the next market buy order be filled?

(A) $89.80; (B) $89.85

Explanation:

A) A market buy order would be filled instantly at the best offer price i.e. the sell order with the lowest price which will also be the sell order that is topmost on the order book.

As such, a market buy order for 125 shares will be filled at a price of $89.80.

B) The next market buy order would be filled at the next best offer price after the order in (A) above has been filled. Accordingly, the next market buy order will be filled instantly at $89.85.

answer; limited pay life;