2016 CFAI Mock Q 56

[verse214]

They are calculating market impact on the second 100 shares of DEF executed at 7 cents which I agree with ($32.32 execution minus $32.25 decision), however there were another 100 shares executed at the DP - shouldn’t that bring down the per share cost for Market Impact?
They ask you to refer to a table for per share execution cost targets.
Can someone please explain?
Thanks

 

[Gersonides]

My understanding is that market impact is only calculated on shares that did not execute at the benchmark price (or previous close price if revised), and not weighted against all lots of shares that sold.
In other words, the cost is borne in isolation. It’s not a weighted formula.

 

[verse214]

It’s just a strange question because they are asking about the entire DEF execution which should include the first lot of 100 that was executed. This in turn should bring down the average market impact per share executed lower.

 

[rnot]

Along the same general lines… the guideline answers seem to be really thorough, we’re not expected to right that much are we? They’re providing the answer and explanation, right?

 

[verse214]

This wasn’t one of the essay questions but yes you don’t have to write that much.