Question 2 (30 marks)

Given the order book for ABC Limited,

[10 marks]

Orders to buy Price Quantity 2.00 10000 1.95 5000 1.90 5000

Required

Orders to sell Price Quantity

2.10 2000 2.15 20000 2.20 10000

1. With the order book above, suppose a market order arrives to buy 3,000 shares,

   A1. At what price will the trade occur? [5 marks] A2. What is the cost of the 3,000 shares to the trader? [5 marks] A3. What will the new limit order book look like after the transaction is completed? [5 marks] A4. If the investor sells this 3,000 shares at the price of $2.3 per share one month later, what is the discrete holding period return for investing in this share? [5 marks]

2. With the order book above, suppose a limit order arrives to buy 1000 shares at $2.05,

   B1. At what price will the trade occur? [5 marks] B2. what will the new limit order book look like after this transaction? [5 marks]