Problem Sets (Paraphrase with your own words.)

6. An investors portfolio currently is worth $1 million. During the year, the investor sells 500 shares of FedEx at a price of $180 per share and 3,000 shares of Cisco at a price of $30 per share. The proceeds are used to buy 1,000 shares of IBM at $160 per share.

a. What is the portfolio turnover rate?

b. If the shares in FedEx originally were purchased for $140 each and those in Cisco were purchased for $20, and the investors tax rate on capital gains income is 20%, how much extra will the investor owe on this years taxes as a result of these transactions?