Measuring the cost of an incomplete buy order
Series XXI-B case study · set 3, case 5 of 6 · 5 questions · 2 marks each
Question 1 of 5Case practice
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The case · stays here for all 5 questions
At a decision price of ₹100, a manager decides to buy 1,000 shares for a portfolio. Execution is incomplete: 600 shares are bought at ₹101 and 300 at ₹102. The last 100 shares are not bought, and the evaluation price at the end of the order is ₹104. Total transaction fees on the executed purchases are ₹900. Use this teaching definition of implementation shortfall: executed quantities multiplied by their purchase-price excess over the ₹100 decision price, plus unfilled quantity multiplied by the final-price excess over the decision price, plus fees. The paper order would have bought all 1,000 shares at ₹100 without fees. Ignore dividends, financing and subsequent price changes.
All amounts and contract terms in this case are hypothetical.
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The case and its answers
Every question of this case, with its answer and why each other option is wrong.
At a decision price of ₹100, a manager decides to buy 1,000 shares for a portfolio. Execution is incomplete: 600 shares are bought at ₹101 and 300 at ₹102. The last 100 shares are not bought, and the evaluation price at the end of the order is ₹104. Total transaction fees on the executed purchases are ₹900. Use this teaching definition of implementation shortfall: executed quantities multiplied by their purchase-price excess over the ₹100 decision price, plus unfilled quantity multiplied by the final-price excess over the decision price, plus fees. The paper order would have bought all 1,000 shares at ₹100 without fees. Ignore dividends, financing and subsequent price changes.
All amounts and contract terms in this case are hypothetical.
Q1What fraction of the intended order was filled?
Option A. 60%
Why it is wrong: This includes only the first execution.
Option B. 90% — Correct answer
Option C. 30%
Why it is wrong: This includes only the second execution.
Option D. 100%
Why it is wrong: One hundred shares remained unfilled.
Answer: B. (600+300)/1,000 = 90%. Remember: Separate order completion from execution price quality.
Hint, shown before you answer in practice mode: Add the quantities actually bought and divide by the intended quantity.
XXIB-S3-C05-Q1easynumerical
Q2What is the volume-weighted average purchase price before fees?
Option A. ₹101.50
Why it is wrong: This gives the two executions equal weight despite different quantities.
Option B. ₹102.33
Why it is wrong: This adds all fees before answering the before-fee question.
Option C. ₹91.20
Why it is wrong: This divides purchase cost by the intended rather than filled quantity.
Option D. About ₹101.33 — Correct answer
Answer: D. (600×₹101 + 300×₹102)/900 = ₹91,200/900 = ₹101.3333 per share. Remember: Use filled volume as the denominator for an average execution price.
Hint, shown before you answer in practice mode: Weight each execution price by its executed share count.
XXIB-S3-C05-Q2mediumnumerical
Q3What is the opportunity-cost component for the unfilled shares under the supplied definition?
Option A. ₹4,000
Why it is wrong: This applies the price move to the full intended order.
Option B. ₹400 — Correct answer
Option C. ₹0
Why it is wrong: The teaching definition expressly includes the unfilled portion.
Option D. ₹100
Why it is wrong: This is the unfilled share count, not a cost.
Answer: B. 100 × (₹104−₹100) = ₹400. The paper portfolio benefited from shares the actual portfolio did not acquire. Remember: An incomplete order can have an opportunity cost even without a realised payment.
Hint, shown before you answer in practice mode: Multiply the unfilled quantity by the final-price rise from the decision price.
XXIB-S3-C05-Q3mediumnumerical
Q4What is total implementation shortfall under the specified definition?
Option A. ₹2,500 — Correct answer
Option B. ₹1,600
Why it is wrong: This includes price slippage and opportunity cost but omits fees.
Option C. ₹2,100
Why it is wrong: This includes executed slippage and fees but omits the unfilled portion.
Option D. ₹1,200
Why it is wrong: This includes only the price slippage on executed shares.
Answer: A. Executed slippage = 600×₹1 + 300×₹2 = ₹1,200. Add ₹400 opportunity cost and ₹900 fees: ₹2,500, equal to 2.5% of the ₹1,00,000 paper order. Remember: An all-in execution measure can include both explicit and implicit costs.
Hint, shown before you answer in practice mode: Add executed price slippage, the unfilled opportunity cost and fees.
XXIB-S3-C05-Q4hardnumerical
Q5Why would reporting only the average purchase price give an incomplete view of this order?
Option A. A partially filled order cannot be evaluated at all
Why it is wrong: The supplied benchmark and cost definition allow a useful evaluation.
Option B. Average price automatically includes every missed share
Why it is wrong: Its denominator is the number of executed shares.
Option C. It leaves out the ₹900 fees and the effect of the 100 unfilled shares — Correct answer
Option D. The unfilled shares must be assigned an actual purchase price of ₹104
Why it is wrong: They were not bought. The stated method measures a hypothetical opportunity cost.
Answer: C. The weighted purchase price summarises executed trades. It does not by itself capture explicit fees or the benefit missed on shares that were never purchased. Remember: State the benchmark and cost components when evaluating execution.
Hint, shown before you answer in practice mode: Compare what the average includes with the supplied shortfall formula.
XXIB-S3-C05-Q5mediumapplication
Correcting a portfolio valuation before reporting
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