Robert Paulson, CFA has just finished a trade in his portfolio for a purchse of PSSC (Paper Street Soap Co.). The trade took several days to complete and Robert wanted to calculate how much the trading process cost through the use of an implementation shortfall calculation. The original trade was put on for 1000 shares with a limit price of $30.00 right after the close on Moday when the stock closed at $30.05. No shares were purchased on Tuesday and the closing price ended at $30.25. Robert revised his limit before Wednesday’s open to $30.30 and 900 shares were purchased at that price with commissions of $25. At the end of the day the stock closes at $30.50 and Robert cancelled the remaining trade.
A. Identify & Describe the different parts of implementation shortfall (2 minutes)
B. Calculate each part of the implementation shortfall strategy and Determine what the total Implimentation shortfall for this trade is. (10 Minutes)
C. List 4 advantages and 2 disadvantages to using an implimentation shortfall strategy. (6 Minutes)