If only bid and ask prices are given, do we use mid-quote or ask price (if I’m buying) as decision price? I have seen contradicting approaches and not sure which one to use. Please help! Thanks!
I think the decision price is just simply the ask price (if buying) at the time the order was entered. Where have you seen the decision price as being the mid-quote, because I thought mid-quote was only used to calculate effective spread?
This is straight from the CFAI book Reading 31 page 24
The decision price is the prior day closing price at the time the order was entered AND the midquote at the time the decision was made is another possible benchmark price.
CFAI has said this price is pretty hard to determine. I’m thinking they would clearly state what price the trade is “based” on and that would be the decision/benchmark price.
I honestly can’t remember, might have been from a third party material. CFAI practice questions did use ask price instead of mid-quote.
I was also wondering about that. Somewhere midquote is definitely used but ask it is then
I did the 2014 AM mock today which included an IS question. The DP was clearly stated, it even said: “The decision price is X.”, since it differed from the previous day closing price.