2013 mock quant questoin

CFA Level I
#1

I’m stuck on this question,

[question removed by admin]

When I use my BAII Plus calculator to solve for IRR, I get A as the answer. However, this is the incorrect answer. Why is this method incorrect?

P.S. the answer is B

#2

It is asked for the Time Weighted Return (TWR = geometric mean) of the investment not for the Money Weighted Return (MWR = IRR).

So, the TWR would be:

  1. Calculate the growth rates p.a.:

Y1: ((168+3) / 160) - 1 = (171 / 160) - 1 = 6.875%

Y2: ((175+4) / 168) - 1 = (179 / 168) - 1 = 6.548%

Y3: ((165+0) / 175) - 1 = (165 / 175) - 1 = -0.057%

  1. Calculate the geometric growth over the 3yr. period:

TWR = ((1.06875 * 1.06548 * 0.94286)^(1/3)) -1 = 2.397 ~ 2.40 --> Corresponds to answer B

Best, Oscar

#3

IRR is for money-weighted rate of return. The question asks for time-weighted rate of return (use HPR).

#4

whoops, i realized that now.

thanks for your help everyone