Homework SourseThe composition of the Fingroup Fund portfolio is as follows
The composition of the Fingroup Fund portfolio is as follows:
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 %
| Stock | Shares | Price | ||
| A | 290,000 | $ | 40 | |
| B | 390,000 | 45 | ||
| C | 490,000 | 20 | ||
| D | 690,000 | 25 | ||
Solution
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%
