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
 
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