Help me out here. I just need to to make sure I haven’t lost my mind… Date…Market Value…Cash Flow December 31, 2004…$182,567 Jan. 16, 2005…$193,490…$35,000 Jan. 31, 2005…$217,008 Feb. 8, 2005…$224,856…(-$140,000) Feb. 28, 2005…$85,183 March 31, 2005…$102,989 Using the modified Dietz method, the portfolio return for the March 2005 quarter is closest to: A) 28.99%. B) 28.48%. C) 27.27%.
i remember doing this… it’s A
no fair.
oops! sorry … just took a stupid test…and scored real bad…needed to boost my confidence…so i thought i’d get some credit for this…haha… anyway…were you having trouble with the calculations? or just wanted to see how other people got through it… for what it’s worth…i probably spent about a half try (in vain) trying to figure it out the first time around too…then when i saw the answer…wanted to kick myself…
ahhh!! after all that work on my calc I am getting 26.6%
I just finished the reading quiz on qbank and I spent a half hour trying this ten different ways. I tried mdietz, dietz, geom linked. I cracked and looked up the mdietz equation to make sure I didn’t flub a sign or something. Anyway, I missed 4 from this item set and I wanted to vomit. I was curious on this one if it was classic schweser garbage or if I have lost my mind and forget/overlooked something that ridiculously simple.
hmm…I am coming up with 19.25%… [102,989 - 182,567 - 35,000 - (-140,000)] / [182567 + (74/90)*35000 + (51/90)*(-140,000)] Anyone know whats going on here??
I am getting 19.257% using mod dietz for the whole quarter. I didn’t try chain linking months. Does their explanation make sense?
heer Wrote: ------------------------------------------------------- > ahhh!! after all that work on my calc I am getting > 26.6% so I was taking each individual date as well …apparently that’s not the way to do it… if i remember they take each month end value compared to previous month end and weigh the cash flow in between…and then geometrically link the returns of the three months…so for example the Jan return would be ($217,008 − $182,567 − $35,000) / ($182,567 + (31 − 16) / 31 × $35,000) = -0.28%.
I haven’t even glanced at this formula in a month, is this where you break it up into time periods, calculate a return then string them together? If so: (193,490 - 182,567) / 182,567 = 0.05983 (224,856 - 228,490) / 228,490 = (0.0159) (102,989 - 84,856) / 84,856 = 0.213691 (.05983 * 0.9841 * 1.213691) - 1 = 0.265221 Could you post the solution?
found it… To calculate returns using the modified Dietz method, subtract the beginning value from the ending value, then subtract any cash flows. Divide that value by the beginning value plus the sum of each cash flow, multiplied by its weight. To calculate the weight, subtract the date on which the cash flow occurred from the number of days in the period, then divide by the number of days in the period. January return = ($217,008 − $182,567 − $35,000) / ($182,567 + (31 − 16) / 31 × $35,000) = -0.28%. February return = ($85,183 - $217,008 – (-$140,000)) / ($217,008 + (28 − 8)/28 × (-$140,000)) = 6.99%. March return = ($102,989 − $85,183) / $85,183 = 20.90%. Quarterly return = (1 − 0.28%) × (1 + 6.99%) × (1 + 20.90%) − 1 = 28.99%. (Study Session 18, LOS 49.e)
Could you manually edit out all of the messiness so it is legible?
I think I know why. What this a questions that pertained directly to GIPS slouiscar?
nah that is the TWR…modified dietz is: [EMV - BMV - sum(CF)] / [BMV + sum(w(i) * CF)] where w(i) = (# day left in period)/(# days in period) I assume BMV is as of 12/31/2004 and EMV is as of 3/31/2005
January return = ($217,008 - $182,567 - $35,000) / ($182,567 + (31 - 16) / 31 × $35,000) = -0.28%. February return = ($85,183 - $217,008 – (-$140,000)) / ($217,008 + (28 - 8)/28 × (-$140,000)) = 6.99%. March return = ($102,989 - $85,183) / $85,183 = 20.90%. Quarterly return = (1 - 0.28%) × (1 + 6.99%) × (1 + 20.90%) - 1 = 28.99%. (Study Session 18, LOS 49.e)
For GIPS, starting in 2005 firms can use a METHOD of calculating returns that estimates daily cash flows (modified Dietz works here) BUT Starting in 2005 MONTHLY portfolio valuations must be used. So to calculate a quarterly reutrn you can use modified Dietz, but you must chain link the monthly returns to be compliant. Lambert.
Thanks mumu!
ohh…so you geometrically link monthly m. dietz calc’ed returns ?? I definitely wouldn’t have know to do that…just though you used starting and ending values over the whole time period…good thing for slouiscar
mwvt9 Wrote: ------------------------------------------------------- > For GIPS, starting in 2005 firms can use a METHOD > of calculating returns that estimates daily cash > flows (modified Dietz works here) > > BUT > > Starting in 2005 MONTHLY portfolio valuations must > be used. > > So to calculate a quarterly reutrn you can use > modified Dietz, but you must chain link the > monthly returns to be compliant. sigh. am never going to pass… > > Lambert.
This is actually a prime example WHY monthly returns (or in 2010 every “large cash flow”) valuation must be used. Look at how different the numbers are. In this case it was because of the massive outflow of funds. But volitilty and large cash flows will make the performance numbers very different.