contestada

suppose that every time a fund manager trades stock, transaction costs such as commissions and bid−ask spreads amount to 0.4% of the value of the trade. if the portfolio turnover rate is 45%, by how much is the total return of the portfolio reduced by trading costs?

Respuesta :

The total return of the portfolio reduced by trading costs = 0.4%

How is the reduced trading cost calculated?

Given that,

At every time a fund manager trades stock, then

Transaction costs = 0.4% of the value of the trade

Portfolio turnover rate = 50% ; On an average, 50% of the portfolio stock is sold and exchange with the other securities every year.

Trading costs on selling orders = 0.4%

Trading costs on buying orders = 0.4%

Therefore,

Total return of the portfolio reduced by trading costs:

= 2 × 0.50 × 0.004

The total return of the portfolio reduced by trading costs = 0.4%

To learn more about trading costs, refer

https://brainly.com/question/15604897

#SPJ4

Otras preguntas