Question

The composition of the Fund WV portfolio is as follows:

Stock	Shares	Price
A	310,000	$	35
B	410,000		40
C	510,000		15
D	710,000		20

If during the year the portfolio manager sells all of the holdings of stock D and replaces it with 200,000 shares of stock E at $40 per share and 200,000 shares of stock F at $31 per share, what is the portfolio turnover rate?

Answer 1

Answer :

STEP 1 : opening value of portfolio

Stock	shares	price	value = price × shares
A	3,10,000	$35	$10,850,000
B	4,10,000	$40	$16,400,000
C	5,10,000	$15	$7,650,000
D	7,10,000	$20	$14,200,000
		TOTAL	49,100,000

STEP 2 :

value of shares purchased = 2,00,000 × $40 + 2,00,000 × $31

= $14,200,000

Or

Value of shares sold = 7,10,000 × $20 = $14,200,000

STEP 3 :

Ending value if portfolio

Stock	shares	price	value = price × shares
A	3,10,000	$35	$10,850,000
B	4,10,000	$40	$16,400,000
C	5,10,000	$15	$7,650,000
E	2,00,000	$40	$8,000,000
F	2,00,000	$31	$6,200,000
		TOTAL	49,100,000

STEP 4 :

Turnover rate = value of shares purchased or sold (which ever is lower) ÷ {(beginning value of portfolio + Ending value of portfolio) /2}

= $14,200,000 ÷ 49,100,000

= 28.92%