Suppose stock X trades on the New York Stock Exchange. Information from the limit order book for stock X is contained below.

Limit buy orders Limit sell orders

Price Shares Price Shares

$100.00 800 $100.50 1500

$ 99.88 1000 $100.75 700

$ 99.50 2500

Suppose the specialists quotes are as follows:

Bid price $100 Ask price $100.50

Bid depth 1000 shares Ask depth 1500 shares

(a) If a market order to sell 700 shares comes in, at what price is it executed? I don't understand how the price is found for this so please explain how you found the answer.

What does the limit order book (LOB) look like after the transaction? Did the LOB change? Why or why not? Did the specialists inventory of stock X change? Why or why not?

Suppose instead that the specialists quotes are:

Bid price $100.25 Ask price $100.50

Bid depth 900 shares Ask depth 500 shares

(b) At what price does the 700-share market sell order execute now? What does the LOB look like following the transaction? Did it change? Why or why not? Did the specialists inventory of stock X change? Why or why not?