Question

You have a ​$109 comma 000 portfolio comprising 10 stocks. You trade each stock five times this year and each time you​ trade, you pay about ​$30 in commissions and spread. You have no special​ knowledge, so you earn only the average market return of 11​% on your investments. How much lower will your total return be because of your​ trades?

Answer 1

Answer:

Return will be 1.3 % lower

Explanation:

We have given that you have a $109000 portfolio which contain 10 stocks

So number of stocks = 10

Number of times traded each stock = 5

Commission and spread pay = $30

So total expenditure = number of stocks ×  number of times × commission and spread per trade = 10×5×30 = $1500

So in percentage $=\frac{1500}{109000}=0.013=1.3$ %

So return will be 1.3 % lower