Question

ou believe that you can earn 2% more on your portfolio if you engage in full-time stock research. However, the additional trading costs and tax liability from active management will cost you about .5%. You have an $800,000 stock portfolio. What is the most you can afford to spend on your research?A. $4,000B. $8,000C. $12,000D. $16,000

Answer 1

Answer:

C. $12,000

Explanation:

additional earnigns for active management:

800,000 x 0.02% = 16,000

expected  active management cost:

800,000 x 0.5% = 4,000

net gain: 12,000

At most, we can spend 12,000 dollars.

Up to this point, the expense are cover by the additional return. bove this threshold the fund will incur in losses from the active management