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You have a ​$108 comma 000 portfolio comprising 14 stocks. You trade each stock five times...

You have a ​$108 comma 000 portfolio comprising 14 stocks. You trade each stock five times this year and each time you​ trade, you pay about ​$27 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?

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Answer #1

Total Cost Incurred for trading the stocks Total Cost Number of stocks traded x Number of times x commission paid per stock = 14 Stocks x 5 Times x $27 per stock $1,890 Market Value of the Portfolio Market Value of the Portfolio-Portfolio amount x (1 + Rate of Return on Investment) - $108,000 x (1 0.11) = $108,000 x 1.11 - $119,880 Reduction in the total return be because of the trades Lower in Return [Total Cost Incurred / Market Value of the Portfolio] x 100 = [$1,890 / $119,880] x 100 = 1.57790

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