You are given the following information about an investment account: Over the year, the...

Question:

You are given the following information about an investment account:

Date Value Immediately Before Deposit Deposit
January 1 10
July 1 12 X
December 31 X

Over the year, the time-weighted return is 0%, and the dollar-weighted (money-weighted) return is Y. Calculate Y.

Insert context header here:

Investment is a productive activity for the company. The company or the investors invest their surplus money in the securities of companies like bonds, stocks, etc and also invest in real estate. The investment provides a good return and capital of the company.

Answer and Explanation:

The time-weighted rate of return = 0%

Therefore,

(12/10) x ( X / (12 + X) )= 1

12X = 120 + 10X

2X = 120

X = 120 / 2

X = 60

Therefore the dollar-weighted rate of return is:

Y = ( X - (10 + X)) / (1x10 + X/2)

Y = (60 - (10 + 60 ) ) / ((1x10)+ (60/2))

Y = (60 - 70) / (10 + 30)

Y = -10 / 40

Y = -25%


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