As we know, dollar-weighted average return is a more accurate way to measure security return performance...

As we know, dollar-weighted average return is a more accurate way to measure security return performance if we buy or sell securities from time to time. Suppose you have the following price information for a risky security for several recent years. Assume that the stock pays no dividends

Year	Beginning of year price	# of share bought or sold
2017	$50	100 bought
2018	$55	50 bought
2019	$51	75 sold
2020	$54	75 sold

What is the dollar-weighted average return over the entire trading period?

Expert Solution

Cash Flow in year 2017 =50*100 =-5000
Cash Flow in year 2018 =55*50 =-2750
Cash Flow in year 2019 =51*75 =3825
Cash Flow in year 2020 =54*75 =4050

Dollar Weighted return using Financial Calculator
CF0=-5000;CF1=-2750;CF2=3825;CF3=4050;CPT IRR =0.74%

Dollar Weighted return =0.74%

jeff jeffy answered 2 years ago

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