Given that there are 45,000 shares of Rockx Inc. (Rockx) in a portfolio, the manager has indicated the desired maximum daily trading volume of Rockx should not exceed 15%. The daily volume is 4,000 shares. Based on those facts, the liquidity duration is closest to:
A. 11.25.
B. 1.69.
C. 75.
D. 0.013.
Answer:C
The liquidity duration is an approximation of the number of days necessary to dispose of a portfolio’s holdings without a significant market impact. It is calculated as follows:
LD = Q / (0.15 × V) = 45,000 / (0.15 × 4,000) = 75