Question

You think a diversified portfolio should have at least 45 different individual stocks. If you have $10K to invest, and are trading at a brokerage that charges you $10 per trade, what percentage of your invested wealth would you be paying to enter into your desired position?

answer in percent

Answer #1

As we need to buy atleast 45 different stocks. So it is adding up to 45 different trades.

Total Brokerage Cost = Number of trades * Cost per trade

= 45 * $10

= $450

The portfolio now has 45 different stocks. The total invested capital was $10,000. The brokerage cost was $450.

percentage on invested wealth spent = (Brokerage Cost / Invested Capital) * 100

= (450 / 10,000) * 100

= 4.5 %

So you will be paying 4.5% of your invested wealth to enter in the desired position

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