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 55%, by how much is the total return of the portfolio reduced by trading costs? (Round your answer to 2 decimal places.)

Question

14-04-2020
Business

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 55%, by how much is the total return of the portfolio reduced by trading costs? (Round your answer to 2 decimal places.)

Respuesta :

Otras preguntas

A nurse is providing home care for a toddler with multiple developmental disabilities who rarely goes outdoors because of photosensitivity. Which nutritional de

Find the area A of the region that is bounded between the curve f(x)=-2sin(x/4) and the curve g(x)=-2sin(x/2) over the interval [π, 2π]

Plot all of the existing five features of the following rational function (some may not be needed). If you get a fraction or decimal then plot as close to the t

Name 2 functions of cells

Create a supply schedule for a good or service you might sell or produce. Include 10 different prices, in equal increments

wave crests bend as they move into shallow water in a process called wave refraction True or False

In which phases of the OPT model can plyometric training occur? 1) Stabilization 2) Strength 3) Power 4) All of the above

Task performance leadership behaviors focus on which of the following: A) quality and accuracy. B) following the rules. C) employee feelings. D) work speed.E) s

Standard economic theory predicts that when wages for New York City cab drivers increase, they will: A. Work significantly fewer hours B. Work slightly fewer h

Paley's argument from design is also referred to as? 1) The ontological argument 2) The cosmological argument 3) The teleological argument 4) none of these answ

Shariqahmed Shariqahmed · Answer 1 · 2020-04-16T03:47:32+02:00

Answer:

A fund manager exchanges the stock on standard base. The level of the exchange costs is 0.4%. The exchange costs include commissions and bid-ask spreads. The turnover proportion of the portfolio is 50%.

Thus, exchanging cost diminishes the portfolio's all out return.

All out return is the general come back from a speculation over some stretch of time that comprises of a wide range of pay.

Since the turnover rate is 50%, which obviously implies the reserve chief sells 50% of the portfolio and replaces them with different protections.

The given exchanging cost is 0.4% and another 0.4% is being brought about on the purchase orders given to supplant the protections.

In this manner, in totality the expense is being multiplied, that is, multiple times.

Figure the portfolio's absolute return diminished by the exchange cost utilizing the accompanying condition:

Decreased measure of return = Total portfolio × Total expense × Turnover rate

Substitute 2 for all out portfolio, 0.4% for all out expense, and 50% for turnover rate in the condition of decreased measure of return.

Reduced amount = Total portfolio × total cost × turnover

Reduced amount = 2 × 0.4% × 50%

Reduced amount = 2 × 0.004 × 0.50

Reduced amount = 0.004 (or) 0.4%

Therefore, the trading costs reduce the 0.4% of the portfolio's total return.

ebrightosagie ebrightosagie · Answer 2 · 2020-04-16T03:49:45+02:00

ebrightosagie ebrightosagie

16-04-2020

Answer: 0.73%

Explanation: Trading / Transaction cost / comission = 0.4%

Portfolio turnover rate = 55%

1. Total return of portfolio reduced by the trading cost.

= Trading cost / portfolio turnover * 100

= 0.4/55 *100

= 0.73%

= 55% - 0.73% = 54.27%

Answer Link