On 222 & 223 of L1 2008 Vol 1 (CFA study notes), there is an example of how to calculate Money-Weighted Rate of Return. I am trying to use my BAII plus calculator and getting completely different answers. Please can someone explain the steps to calculate using the calculator. I have understood the concept, but having trouble with the calculations. Thanks a bunch!
finfan, enter the cash flows into your calculator’s CF worksheet (i.e. CF_0, CF_1, etc.), press the IRR key, then the CPT key to compute. If you post the specific cash flows, we can walk you through the exact keystrokes if necessary. The main lesson here is that IRR and a money-weighted return are the same thing. Note that becoming proficient with your CF worksheet can also help you quickly solve multi-stage DDM problems.
Use the cash flow function to find money weighted returns. Always make sure to clear the memory by hitting [CF] [2nd] [CLR WORK]. CF0: initial cash flow, usually a negative amount, for example, the purchase of a 100 dollar stock C01: period 1 cash flow…perhaps you purchase another stock for 100 bucks, earned a 5 dollar dividend from the first stock, so you would enter -95 C02: period 2 cash flow…perhaps you sold both stocks for 110 each and received 5 dollar dividends on both shares, so a positive cash flow of 230 Finally, hit [IRR] [CPT] to find the internal rate of return, or money-weighted return
Thanks to both of you… It helped!