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You are operating a mutual fund which today has $100mil in assets. Your returns and fund...

You are operating a mutual fund which today has $100mil in assets. Your returns and fund flows into/out of the fund are listed below.

Time =

Return

Fund Flow $Mil

1

20.00%

5

2

10.00%

3

3

-30.00%

-10

4

10.00%

4

5

-5.00%

-2

What is the dollar-weighted average (mean) of the returns?

Solutions

Expert Solution

Weighted average mean is calculated by multiplying the returns with its weights or times. we will follow the below steps to calculate the new weighted average mean:

1) Calculate the absolute number of funds in all five options:

in first option the fund is

in second option the fund is

Thus, all 5 funds are being calculated.

2) New weights are calculated by using the following formula:-

New fund allocation divided by 100 and multiplying by 15.

3) New weights and their respective returns are multiplied to get the weighted average return of each fund. The sum of these weighted average return which is 0.3375 or 33.75%.

4) The dollar-weighted average will be calculated as below:-

Thus, the dollar weighted mean is $33.75 million .

jeff jeffy answered 2 months ago
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