2014 AM Exam, Q10D (Trading, Monitoring, and Rebalancing)

CFA Level III Portfolio Management
#1

Q10D of the 2014 AM Exam asks to calculate the component of the implementation shortfall (in bps) that is attributable to realized profit/loss.

The institute book instructs that to calculate the realized profit/loss component, the formula would be:

[(EP - DP)/BP] * (purchased shares/total shares)

However, the solutions to the 2014 AM Exam indicate that the formula to calculate the realized profit/loss component is:

[(EP - DP)/DP] * (purchased shares/total shares)

Any explanation for this discrepancy? Thanks!

#2

That`s because you decided to enter the trade on Tuesday (not on Monday) when the price was 12.45. This price should be used as the benchmark price here.

#3
  • when not stated otherwise, it seems we need to take the decision price as the benchmark price.