Markets and Institutions Market Story Problem

My attempt


Bid-ask spread = ask price – bid price

Bid-ask spread = $22 - $20

Bid-ask spread = $2

Mid-price = (ask price + bid price) / 2

Mid-price = ($22 + $20) / 2

Mid-price = ($42) / 2

Mid-price = $21


Working:

We create the market depth table



Based on the table, using a single market order we can buy 50 shares (because the total selling quantity is 50) and

Using a single market order we can sell 30 shares (because the total buying quantity is 30)


Working:
our first 10 shares would be executed at $22

And our next 5 shares would be executed at $23

Average price = ($22*10 + $23*5)/15

Average price = ($220 + $115)/15

Average price = ($335)/15

Average price = $22.33

What will be the new mid-price?

Now the best sell price is at $23

Mid-price = (ask price + bid price) / 2

Mid-price = ($23 + $20) / 2

Mid-price = ($43) / 2

Mid-price = $21.50

c) Submit a limit buy order at $19.50?

Answer) our order would be inserted between $20 and $19 in the limit order book

The new order book would look like this




New mid-price would be $21

This would be same as done in part A.

Because the order we put in is not the nest bid price, it won’t affect the mid-price.

Thus, the answer would be same as $21

Could you explain part C with the work? Im confused where to find the ask and bid price. and how to determine the bid ask spread? Thank you for the extra clarification.

Answer:

The order would be inserted between $20 and $19 in the limit order book as shown on the table 2.

Still the same.

Bid-Ask Spread = ask price - bid price

Bid-Ask Spread = $22 - $20

Bid-Ask Spread = $2

Mid-Price = (ask price + bid price) / 2

Mid-Price= ($22 + $20) / 2

Mid-Price= ($42) / 2

Mid-Price = $21

Because the order we put won't affect the mid-price. Thus the answer would be the same as $21.