Question

You are the manager of the Mighty Fine mutual fund. The following table reflects the activity of the fund during the last quarter. The fund started the quarter on January 1 with a balance of $100 million.

Mighty Fine Mutual Fund
Monthly Data (measured at end of month)
	January	February	March
Net inflows ($ million)	7.3	-3.8	0
HPR (%)	-3.50	7.10	2.80

a. Calculate the quarterly arithmetic average return on the fund. (Round your answer to 2 decimal places.)

Arithmetic average               %

b. Calculate the quarterly geometric (time-weighted) average return on the fund. (Round your answer to 2 decimal places.)

Geometric average               %

c. Calculate the quarterly dollar-weighted average return on the fund. (Round your answer to 2 decimal places.)

Dollar-weighted average return               %

Answer 1

Workings:

Note:

Calculation of dollar-weighted average return:

Dollar-weighted average return considers the return (inflows) received during the holding period and also the value of the fund at the end of the holding period (in this case, March end). While inflows are given in the question, value of the fund at the end of the holding period needs to be found.

HPR % or Holding Period Percentage = (Net Inflows + (Ending Balance of fund for the month - Opening Balance of fund for the month)) / Opening Balance of fund for the month

Changing the above equation, Ending Balance of fund for the month = (Opening Balance of fund for the month)*(1+HPR%)-Net Inflows

Ending Balance of fund for each of the months and also end of March is determined using the above equation and then to calculate dollar weighted average return, Excel function IRR is used considering the initial investment, net inflows in each of the months and closing balance of fund at March end.