Implementation Shortfall (2018 AM Q10B)

CFA Level III Portfolio Management
#1

Hi all,

Unfortunately, in the above mentioned question, the calculation of the implementation shortfall based on the approach of splitting it into four components is not given. The guideline answer states:

Alternate approach:

Implementation shortfall can also be broken down into commission cost plus three components.

Has someone solved the question based on this approach and is able to provide the numbers used for all four components?

Thanks!

#2

I used the paper portfolio method to get the answer. Do this method as its easier

#3

6 minute question you have to use the paper portfolio method.

But anyways,

Delay

4th 11.20 - 11.10/11.10 x 15/30 = 0.0045

5th 11.15 - 11.10/11.10 x 10/30 = 0.0015

Commission

4th 15000x 0.02/30000x11.10 = 0.0009

5th 10000x 0.02/30000 x 11.10 = 0.0006

MTOC

11.25-11.10/11.10 x 5/30 = 0.00225

Realized Gain/loss

4th 11.12-11.20/11.10 x 15/30 = -0.0036

5th 11.14-11.15/11.10 x 10/30 = -0.0003003

I/S = Delay + Comission + MTOC + Realize G/L

0.0045 + 0.0015 + 0.0009 + 0.0006 + 0.00225 - 0.0036 - 0.0003003

= 0.00585 ish. You probably can get 58.6 bps if you don’t round but I rounded a lot of the numbers.

#4

Thanks a lot

#5