Question

You believe that you can earn 2% more on your portfolio if you engage in full-time stock research. However, the additional trading costs and tax liability from active management will cost you about .5%. You have an $800,000 stock portfolio. What is the most you can afford to spend on your research?

Answer 1

Answer:

the most spend on research will be $12,000

Explanation:

given data

earn =  2% more

trading costs = 0.5%

stock portfolio = $800,000

solution

we know that here net earnings due to research is expected is

net earnings due to research = 2% - 0.5 %  = 1.5 % of stock portfolio

so

spend on research is = 1.5 % of stock portfolio

spend on research is = $800,000  × 1.5%

spend on research is = $12,000

so here when we spend more than $12,000 it end up in a net loss

so the most spend on research will be $12,000