Anyone else notice the following formulas that CFAI uses: Estimated Implicit Costs = Trade Size x (Trade Price - Benchmark Price) - For a Buy Estimated Implicit Costs = Trade Size x (Benchmark Price - Trade Price) - For a Sell This question in CFAI Reading 41 (#8) through me for a loop… Then there’s question #10 where they use the same formula above to calculate implicit costs. Is this a shortcut method to calculating Total Implicit Costs (excluding Commissions)? If we were to add the explicit costs, would that give us the Implementation Costs? PJStyles
PJ, if you look carefuly at this examples, there will be no delay costs (all trades executed in the same day) and no missed opp cost either. There is only profit/loss
So is that why the formula in my original post applies as the implicit costs? Didn’t they only buy 600 shares on the 1 day and then another 100 shares the following? Unless I’m thinking of a different example.