The best bid and best ask prices for the Zoom Stock are $369.00 and $369.35, respectively. 500 shares are available at the bid price and 1500 shares are available at the ask price. You decide to submit a market order to buy 110 shares. Just before you get your order in, another trader submits a limit order to sell 100 shares at a price of $369.15 or better. What is the total price that you end up paying (not including any brokerage commission) for your 110 shares?

Question

The best bid and best ask prices for the Zoom Stock are $369.00 and $369.35, respectively. 500 shares are available at the bid price and 1500 shares are available at the ask price. You decide to submit a market order to buy 110 shares. Just before you get your order in, another trader submits a limit order to sell 100 shares at a price of $369.15 or better.    What is the total price that you end up paying (not including any brokerage commission) for your 110 shares?

BlackTom AI · Accepted Answer

To begin, lay out the market situation and what a market buy order does. The prevailing best bid is 369.00 for 500 shares and the best ask is 369.35 for 1500 shares. A market buy order will consume available supply starting from the best ask price and moving up the ask ladder as needed.

Option A: $34,567.50. If this were correct, it would imply a much smaller total than the actual fills imply. Since we are purchasing 110 shares, even if all were bought at 369.15 (the improving price from the incoming limit order) the total would be 110 × 369.15 = 40,606.50, which is already higher than this figure. Therefore this option cannot be correct.

Option B: $39,300.00. This would correspond to an average price around 356.77 per share, which is inconsistent with the given ask prices (369.15 and 369.35). The market would not allow filling at such a low level when the best available asks are about 369.15–369.35. Thus this choice is incorrect.

Option C: $42,128.25. This would imply a higher average price than the actual best asks would permit for 110 shares. If we bought all 110 at 369.35, the total would be 110 × 369.35 = 40,628.50, and mixing in 369.15 for some shares would only reduce the total, not increase it to 42,128.25. Hence this option is not plausible given the market depth described.

Option D: $40,608.50. This aligns with the sequence of executions: 100 shares filled at the improved price of 369.15 due to the incoming limit order, and the remaining 10 shares filled at the existing best ask of 369.35. Calculating: 100 × 369.15 = 36,915.00 and 10 × 369.35 = 3,693.50; add them to obtain 36,915.00 + 3,693.50 = 40,608.50. This exactly matches the provided total and reflects the correct market-clearing path.

Putting it together, the only option that matches the logical fill sequence and the given bid/ask dynamics is the 40,608.50 total. The other options fail to correspond to the actual price levels available at the moment of execution, given the incoming limit order and the existing depth.

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