Guys, i really need help with this monster. I thought i was on top of this guy when i was listening to the Schweser lectures but EOC questions completely threw me off.
There is this question (Q10) which has me in knots here. A trader decided to sell 30,000 shares of a company. At the time of decision the quoted price was 53.2 - 53.3 . Because of the large size of the order, it was split in to 3 equal orders executed on 3 different days. When the first order was placed the price was 53.2 - 53.3 and the shares were sold at 53.22. Prices declined as a result of the trade and closed at 53.05 - 53.15 when the next order was placed and was executed at 53.06. The prices fell to 52.87 - 52.98 when the last order was placed and was executed at 52.87. Ignore the commissions
A). Calculate total transaction cost if the closing price was used as BM price.
B). Implementation shortfall?
I tried solving part A as 30,000*53.2=1,596,000 (Starting Value) and 30,000*52.87=1,586,100 (ending value). This translates into a loss of 9,900 on our paper folio. For actual folio, I multiplied 10,000 with 53.22, 53.06 and 52.87 which gave me 533,200+530,600+528,700 which means a total folio value of 1,592,500. Therefore the actual gain/loss w.r.t paper folio is 6,400.
I know I am completely wrong here but the solution confused me even further.
For implementation shortfall, its using the numbers on which i simply cant get my head around. P
If someone is generous enough with their time, please help me understand whats going on here. Usually the solutions are very nicely explained but this is not the case here.
I’ll be grateful if someone can help me understand. I am freaking out completely