Question about Time-weighted rate of return
HI, guys, as I studying ime-weighted rate of return, there is something I don’t understand,
An investor purchases a share of stock at t=0 for $100. At the end of year, t=1, the investor buys another share of the same stock for $120, at the end of year 2, the investor sells both shares for $130 each. At the end of both year 1 and 2, the stock paid a $2 per share dividend, what is the annual time-weighted rate of return for this investment?
step 1: Holding period 1: beginning value =$100
dividend paid =$2
ending value =$120
Holding period 2: beginning value =$240 (2 shares)
dividend paid =$4 ($2 per share)
ending value =$260 (2 shares)
My question is why the ending value of holding period 1 is 120? in my opinion, at end of year 1, the investor will have 2 shares, which values at 120*2=240, and it will equals with beginning value of holding period 2. but why it is 120? Anyone could enlighten me on this? Thanks in advance!
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