R30 EOC Qt 8 and 9

CFA Level III Portfolio Management
#1

Solution to Qt 8:

For a BUY order: Estimated implicit costs = Trade size x (Trade price - benchmark price)

For a SELL order: estimated implicit costs = trade size x ( benchmark price - trade price)

How can a sell order that was executed above the benchmark price be an implicit cost? If benchmark is 538 and I execute trade for 550, its a benefit of 12 for me right? why is it a cost?

Solution to Qt 9:

This now says that for a sell order, the broker would check whether sale price is above benchmark price for a positive comparison to benchmark. This apparently makes more sense but is this at conflict to the formula for estimated implicit costs?

What am i missing here?

#2

if you notice sign, it should be a negative cost. which means its a benefit.

#3

As simple as that :slight_smile: Thanks Sachin!

Are you studying using Elan Guides?