Suppose you submit a market buy order of 35 shares to the following order book Offers Bids Price $ $ $ $ $ $ $ $ $ $ $ 110.00 109.00 108.00 107.00 106.00 105.00 103.00 102.00 100.00 99.00

Transcribed Image Text:

Suppose you submit a market buy order of 35 shares to the following order book Offers Bids Price $ $ $ $ $ $ $ $ $ $ $ 110.00 109.00 108.00 107.00 106.00 105.00 103.00 102.00 100.00 99.00 98.00 Shares 3 18 4 25 2 15 12 15 21 8 11 a) What price do you pay for the shares that you buy? What is the new top of the book? List each price and the number of shares purchased at that price. List the new prices and shares at the top of the book. One year later, you decide to sell your 35 shares and submit a market sell order of 35 shares to the following order book. Offers Bids Price $ $ $ $ $ $ $ $ $ $ $ 135.00 134.00 133.00 132.00 131.00 130.00 127.00 126.00 124.00 123.00 122.00 Shares 14 1 23 9 18 25 12 19 15 27 25 b) What price do you sell your shares for? List each price and the number of shares sold at that price. c) What is your return from this trade? Return d) What is the effective spread from your market buy order? Effective Spread e) What return would you have earned if you were able to make your trades (buy and sell) at the market value of the stock (Assume that the midpoint of the top of the book is the market value)? Hypothetical Return f) Explain why the effective return from c) is different than the "Hypothetical Return" from e).

• Expert Answer

a To determine the price you pay for the shares you start matching the shares you want to buy with the lowest ask prices in the order book until you v View the full answer