# Easy Question

Jan 1 06 - Stock Purchase \$86 Jan 1 07 - Stock Purchase \$94 Jan 1 08 - Sold them both for \$212, \$106 each. What is the time-weighted return?

I got 10.8%. Is that correct?

Nope. this one confused me. I know how to figure it out, but it’s not consistent on how they do it in the book

ya ur right. it’s f’ed up. i’d like to know as well once and for all.

Well. 94/86 = 9.3% 212/188 (94 X 2) = 12.7 I’m assuming the second period HPR is incorrect. What did you get in the book?

No rounding, I get 11.03%

10.8% = (1.09)(1.12) ^.5 - 1

I got 11.02%

They take (94/86) * (106/94), then take the square root of that. but I would think it should be calculated like this: HPR return for one yr, 94/86 HPR return for second yr then 94+86 = 180 / 212

94/86 = 1.093 106/94 = 1.1277 (time weighted doesn’t care how many shares you bought). (1.093*1.1277)^(1/2) - 1 = 11.02%

11.02? [(1 + (94-86)/86)(1 + (212-188)/188)]^.5 - 1

94 - 86/86 = 9.302 106-94/94 = 12.766 1.09302 X 1.12766 ^.5 - 1 I Lied I did the math wrong…11.02%

Why do you disregard the sale of one of the stocks?

so meazza was right!

yeah i thought it would be 180 as well, but then in the second year don’t you have two stocks at 94, for 188 instead?

LoL, no I got 10.8. But if the exam offers 11.02% as an option, I’d probably choose that if 10.8 is not there

i think it’s not, b/c 212/188 is the same as 106/94, so it’s just the reduction of the ratio

so its 10.8% for sure?

that’s not the way I perceived it. I thought it said I bought one stock for this amount one yr, then next yr I bought it again but it was trading and this amount

11.59%