confused by delayed cost and realized profit/loss in Volume 5
The practice problem of 11 of Volume 3
Suppose 1,000 shares of Acme co. Stock are ordered to be bought on Monday with a benchmark price of $10. On Monday, 600 shares are purchased at $10.02 per share. Commission and fees are $20. On Tuesday, the benchmark price has fallen to $9.9 per share. On Tuesday, 100 more shares for Acme close on Tuesday at $10.01 per share. The remaining shares are not purchased, and the order is canceled on Wednesday just as the market closes at $10.05 per share
B. Calculate the components of the implementation shortfall for this trade
The answer of problem 11:
Monday: 600/1000 *[($10-$10)/$10] =0%
Tuesday: 100/1000 *[($9.9-$10)/$10] =-0.01%
Realized profit and loss cost
Monday: 600/1000 *[($10.02-$10)/$10] =0.12%
Tuesday: 100/1000 *[($10.08-$9.99)/$9.99 =-0.09%
Missed trade opportunity cost
300/1000 *[($10.05-$10)/$10 =0.15%
My questions are below:
1) Which benchmark should I use in calculating realized gain/loss and delayed costs?
2) No close prices for Monday and Tuesday? Just benchmark for Monday and Tuesday available ?
Any one can clear the concepts of realized gain/loss and delayed costs based on the practice above?
the followings are definitions of realized gain/loss and delayed costs based on Schweser note and CFAIII book
the formula of realized gain/loss = Execution price -previous day close/Benchmark * shares purchased/share ordered
the formula of delayed costs= previous day closing price - benchmark close/benchmark price * shares purchased/shares ordered
Volume 5 of CFAIII book
“Delay cost, reflecting the change in price (close-to-close price movement) over the day an order is placed when the order is not executed that day”. compared to the definition of Schweser, no benchmark is mentioned. Why?
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