Hi there! I’ve got a question about the Round-trip Commission in calculating the ETF’s total cost.
Here is the question: the bid-ask spread is 0.15%, the ETF commission is 0.1%, and the annual management fee is 0.08%. It is asking for a 3 months average annual total cost.
the Answer is 20.1%+0.15%+0.08%(3/12)=0.37%
Can anyone tell me why does it have to multiply a 2 for the commission, please?
much thanks,
Angie
purchase and sale of an ETF.
Thank you!
Good luck in the exam!
Angie
Hi
There is a CFAI question below that doesn’t multiply by 2
Consider an ETF with the following trading costs and management fees:
● Annual management fee of 0.40%
● Round- trip trading commissions of 0.55%
● Bid–offer spread of 0.20% on purchase and sale
Excluding compound effects, the expected total holding- period cost for investing
in the ETF over a nine- month holding period is closest to:
A 1.05%. - Right answer
B 1.15%.
C 1.25%.
But the original question mentioned above does multiply by 2.
Which is correct?
The first original question is saying ETF commission, your question is saying round trip commission. Round trip commission = one way commission x 2.
And Holding period cost = Round trip commission + Bid-offer spread on purchase and sale + Management fee
In summary, in your question 0.55% is after multiplying by 2, meaning the one way commission is 0.275
Yes that’s it! Very good point, thank you Marton!
You’re welcome 
Hey Marton, do you happen to know why we don’t multiply the bid-offer spread by 2?
My understanding is that usually the bid-offer spread given is already on sale and purchase, meaning it’s already multiple by 2. Actual CFAI formula is: Round trip trading cost (%) = (One way commission % x 2) + ( ½ x Bid ask-spread % x 2).
As you can see, you first divide the bid-ask spread by 2 to split it for purchase and sale, then multiply it by 2 to add back together. The end result is the same bid-ask spread you began with.