Implementation shortfall

From stalla mock exam: Day 1: Mkt closes at 75. decide to buy 8000shares @74 using limit order Day 2. Limit order does not fill. Mkt closes at 75.75. some favourable news in. Day 3. new limit order for 8000 shares @ 77. At the end of the day, 4000 shares at $77 plus $1500 commission. Shares close at $79 and remaining 4000 shares never purchased. Am I right in the following calculation? Delay cost : 4000/8000* (75.75 - 75)/75 REalised loss/profit : 4000/8000 * (77 - 75.75)/75 Opportunity cost : 4000/8000 * (79 - 75)/75

i think it’s correct

its not correct - your realized profit/loss is wrong for sure (the other parts i don’t know). shares close at $79 - you’re realized p/l would be 79-77 mutliplied by the number of shres you purchased.

profit/loss = (77-75.75) * 4000 delay/slippage = (75.75-75) * 4000 opportunity = (79-75) * 4000

79-77 cannot be realised profit/loss. it could be unrealised profit/loss!! although I have not heard such a term. Comp_Sci_kid: I think you are stating in dollar terms and am stating it as percentage. I have a feeling that this question will appear in the exam for sure and I will most likely goof up…

ya - ignore me. This is one section i hate and have ot learn the week before the exam. i dread learning this. who can sell me ahedge on this not showing up with the payoff being to me if it does show up on the exam?

krishna1, you better learn dollar terms as CFAI uses it

CFAI also uses percentages, so wouldn’t hurt to know both

Hey don’t forget the 1500 in Commissions also!

how we use commission in calcs???-i forgot and don’t have book with me.

COMMISSION OVER OPTIMAL ASSET PURCHASE: 1500/ (8000*74) 1500/ 592,0000 0.25% Correct?


no, benchmark price = 75, not 74 (which is her first limit price)

Sorry, yes Hala you are correct. But its still 0.25% :slight_smile:

oh yes, I see…