When you buy or sell stocks, you will need a broker. A stock
broker charges a fee called a commission. Here are the equations to
calculate the costs and profits or losses of buying and selling
stocks:
Cost of purchase: (stock price) ´
(number of shares bought) + commissions
Proceeds from selling: (stock price) ´ (number of shares sold) - commissions
The difference of the proceeds and costs will tell you if you
made or lost money. The commission can be a percentage of the
purchase price or a fixed fee. A discount broker usually charges
$15 to 30 commission per transaction. A full- service broker
usually charges $50 to 120 for buying or selling 100 shares of
stock. You pay a commission when you buy or sell stocks.
Buying stocks:
The share price of IBM is at $115 3/4. You buy 100 shares of IBM
and pay 2%
commission. What is the total cost of the purchase?
| Share price |
|
115 3/4 |
| Convert to decimal |
|
115.75 |
| How many shares you are going to buy |
x |
100.00 |
| Multiply to get cost of
shares |
= |
$11, 575.00 |
| Cost of shares again here |
|
11, 575.00 |
| Broker's commission rate |
x |
0.02 |
| Multiply to get broker's
charge |
= |
$231.50 |
| Add the two numbers to get total cost of
purchase |
|
11, 575.00 |
| |
+ |
231.50 |
| Total cost of purchase |
= |
$11, 806.50 |
Selling stocks:
The share price of IBM is at $135 5/8 six months later. You sell
all 100 shares of IBM.
Here are the steps to find the proceeds from selling the
stocks:
| New share price |
|
135 5/8 |
| Convert to decimal |
|
135.63 |
| Number of shares sold |
x |
100.00 |
| Multiply to get new
value of stocks |
= |
$13,
563.00 |
| New value of stocks again here |
|
13, 563.00 |
| Original cost of shares |
- |
11, 806.50 |
| Final value |
= |
$1,
756.50 |
Broker’s commission
| New value of stocks |
|
13, 563.00
|
| Broker's commission rate |
x |
0.02
|
| Multiply to get amount for
commissions |
= |
$271.20
|
Profit or loss
| Profit again here |
|
1, 756.50
|
| Broker's commission |
- |
271.20 |
| Subtract to get final profit of
investment |
= |
$1, 485.30 |
With $10,000 David bought Boeing at $41 1/2 with a 3% broker's fee.
If he sold at $47 3/4 over the Internet with a broker's fee of $30
per transaction, how much of a profit would he make?
Estimate the answer:
 Less
than $1,000
Between $1,000 and $1,500
 Over
$1,500
|
