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Suppose that every time a fund manager trades stock, transaction costs such as commissions and bidask spreads amount to 2.5% of the value of the
Suppose that every time a fund manager trades stock, transaction costs such as commissions and bidask spreads amount to 2.5% of the value of the trade. If the portfolio turnover rate is 50%, by how much is the total return of the portfolio reduced by trading costs? Hint: If the turnover rate is 50%, this means that, on average, 50% of the portfolio is sold and replaced with other securities each year. (Enter your answer as a percentage rounded to two decimal places.) |
Total return reduced by trading costs | % |
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