8 basis points to rebalance $75 million

Question

A fund estimates all-in transaction costs of 8 basis points to rebalance a \75 million portfolio. Solve in your head. What is the cost in dollars? Aim: under 10 seconds.

Accepted Answer

One basis point of the notional, the notional shifted four decimal places: 1 	ext{ bp of } \75	ext{M} = 7.5 	imes 10^7 	imes 10^{-4} = \7{,}500. Then scale by 8: 8 	ext{ bp} = 8 	imes 7{,}500 = \60{,}000. The mental route: 8 	imes 75 = 600, and the unit is "hundred" (since 1 bp of \1M is \100), so 600 	imes \100 = \60{,}000. In percentage terms, 8 bp is 0.08\%, so trading a \75M book costs about \60k, worth weighing against how much the rebalance is expected to add. Takeaway. Anchor on 1 bp of the notional (1 bp of \1M is \100, so \75M is \7.5k), then multiply by the bp count. Framing…

8 basis points to rebalance $75 million

Your answer

More Mental Math questions