In this example, the probability of an upward or downward stock price movement is 50 percent. Make the additional assumption that if the stock price goes up twice in a row, the probability of a third upward stock price movement is 25 percent (and thus the probability of a downward price movement is 75 percent). Also assume that if the stock price goes down twice in a row, the probability of a third downward stock price movement is 25 percent (and thus the probability of an upward price movement is 75 percent). On average, what price do we pay if we submit a limit order to buy shares at $9.99 per share? Is this preferable to submitting a market order to buy shares right now at $10.00 per share?

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