You believe that you can earn 2% more on your portfolio if you engage in full time share research. However, the additional trading costs and tax liability from active management will cost you about 0.5%. You have a $800 000 share portfolio. What is the most you can afford to spend on your research?
A)$4 000
B)$8 000
C)$12 000
D)$16 000

Question

Quizplus · Accepted Answer

To calculate the maximum amount that can be spent on research, we need to compare the additional returns expected from the research with the additional costs incurred due to trading and taxes.

Expected additional return = 2% of $800,000 = $16,000

Additional costs = 0.5% of $800,000 = $4,000

Therefore, the net benefit of active management is $16,000 - $4,000 = $12,000.

This means that you can afford to spend up to $12,000 on research and still come out ahead with active management.

So the answer is C, $12,000.

You Believe That You Can Earn 2% More on Your