# Money weighted example

Forgotten how this works. An investor opened an account by purchasing 1000 shares of stock at \$42 per share. One yr later these shares were at \$55 /share and the investor purchased 1000 more. At the end of the second yr, the shares were trading at \$54. Calculate the money weighted return a 7.73 b 5.26

a) 7.73

mwr = IRR of investments CF0 = -42 CF1 = -55 CF2 = 108 Calculate IRR = 7.73%

and the time weighted return please?.whats the loss in the second year . 1k or 2k?. i am confused

TWR HPR for Year 1: 55/42 = 1.30985 HPR for Year 2: 54/55 = 0.9818 Total TWR = (1.3095 * 0.9818 )^.5 -1 = 13.39% or else shortcut (54/42)^.5 -1 = 13.39%

what if there are dividends paid on the stocks at the end of year 1 and 2? lets say dividen is 1 dollar per share, how do u add that in?

Dividend would get added to the Final Price (or beginning price – refer one of the questions in the CFAI sample tests). If Div. paid at the end of year 1. HPR = (55 + 1 - 42) / 42 If Dividend was paid at the beginning of Year 1 HPR = (55 - (42+1)) / 43 For the MWR – the Dividend would go into the 2nd year Cashflow e.g. 2nd year cash flow would become -54 instead of -55 as above. CP

Hi CPK, If dividend was paid at the beginning of the yr should it be 55- (42-1)/41 since the effective cost of purchsing is 41.

nope, that’s not the way it was done in the sample exam. 55/43 is the HPR for the problem. That would be the case in other portions, e.g. equity investments.

In case the # of shares were different for the time-weighted, it should be the total value before and after. For 2nd period \$108k/\$110k.