Question

The composition of the Fingroup Fund portfolio is as follows:

Stock	Shares	Price
A	290,000	$	40
B	390,000		45
C	490,000		20
D	690,000		25

If during the year the portfolio manager sells all of the holdings of stock D and replaces it with 230,000 shares of stock E at $50 per share and 230,000 shares of stock F at $25 per share, what is the portfolio turnover rate? (Round your answer to 2 decimal places.)

Turnover rate             %

Answer 1

Portfolio turnover is calculated by taking either the total amount of new securities purchased or the amount of securities sold (whichever is less) over a particular period, divided by the total net asset value (NAV) of the fund.

Portfolio turnover rate = Total amount of new securities sold / Net asset value

Total amount of new securities sold = 230000 shares * $50/share +230000 shares * $25/share

= $1,72,50,000

Net asset value = Market value of assets - Market value of liabilities

= 290000*40+390000*45+490000*20+690000*25

= $5,62,00,000

Portfolio turnover rate = 17250000 / 56200000

= 0.3069 i.e 30.69%

Portfolio turnover rate = 30.69%