Question

Consider the following limit order book of a specialist. The last trade in the stock occurred at a price of $40. If a market buy order for 100 shares comes in, at what price will it be filled? Picture $39.75 $40.50 $40.375 $40.25 or less

Answer 1

Answer:

$40.25 or less

Explanation:

A limit buy (or sell) order refers to an order to buy (or sell) at a maximum specific price or lower (or higher if it is a sell order).

Since the last trade was at $40, this new buy order must be the closest possible to $40, but not a lower price (so $39.75 is not a valid option). In this case, the closest option is $40.25 or less, since the other options would benefit the seller, not the buyer.