Question

1. Date                Cash Flow       Balance

                                    7/1                      Begin            2,150

                                    7/31                    ------              2,280

                                    8/1                      $180             2,460

                                    8/31                    ------              2,561

                                    9/1                      $100             2,661

                                    9/30                 End               2,500

Calculate the average monthly percent rate of return using the time-weighted method over the three months provided here round your answer to 3 decimals in the form 0.000

2. Date                Cash Flow       Balance

                                    7/1                      Begin            2,150

                                    7/31                    ------              2,280

                                    8/1                      $180             2,460

                                    8/31                    ------              2,561

                                    9/1                      $100             2,661

                                    9/30                 End               2,500

Calculate the average monthly rate of return using the money (dollar)-weighted method over the three months provided here (round your answer to 3 decimals in the form 0.000

Answer 1

1. Formula for Time weighted method - rate of return is

TWR = [(1+HPR₁)*(1+HPR₂)*.....(1+HPR_n)]-1

TWR is Time weighted Return

n is Number of period

HPR is Holding period return

For the month of July =

= 6.047%

For the month of August =

=4.106%

For the month of September =

=-6.050%

TWR = [(1 + 6.047%) X (1 + 4.106%) X (1 + (-6.050%))] - 1

= [(1.06047)*(1.04106)*(0.9395)]-1

Time Weighted Average rate of return is 3.722%

2. To Calculate the money weighted average rate of return two numbers need to be calculated first

First is return from the investment

calculated as follows $2500 - $2150 - $180 - $100 = $70

Second is weighted period of cash flow

for August multiply by 11/12 to calculate yearly return

for September multiply by 10/12 to calculate yearly return

So weighted investment is 2150 + (180*11/12) + (100*10/12) = 2398.333

Therefore Money weighted return is 70/2398.333 = 2.919% per annum