The Smith account is valued at $400M at the beginning of the month. On day 8, after receiving a $900M contribution the account is valued at $1.3MM. At the end of the month the account is valued at $2,695,398. Calculate the TWR and MWR.
I am assuming your issue is related to the Money weighted calculation and not the TWR. If so, unless the cf happens at mid month, you will need a freakin’ spreadsheet to compute MWR by trial and error hence not possible on the exam.
You are correct in that assumption. The TW calc was no problem, but the Schweser video provided an answer for the MWR with no calcs shown. I messed around with the IRR function of my calculator for 10 minutes with no success, so I wanted to see if anyone on AF could pull off the calculation (on their BA II Plus).
TWR: a) [(1,300,000 - 900,000) - 400,000]/400,000 = 0% b) (2,695,398 - 1,300,000)/1,300,000 = 107% TWR = [(1.0)*(2.07) - 1] = 107% MWR: Too lazy to figure out (guess and check sucks).
107.34% is correct for TWR
MWR= 70.398% that’s assuming your end portfolio values is missing 3 0s …? if you put 400 CF0, 900 CF1 and then -2695…you’ll get 70.398%
Okay, well… MWR calculation would be $2,695,398 = $400,000*(1+r)^30 + $900,000*(1+r)^22 Solve for r…that easy. r ~ .03 So MWR is (1 + .03)^30 ~ 142.7% ??
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wanderingcfa Wrote: ------------------------------------------------------- > Okay, well… > > MWR calculation would be > > $2,695,398 = $400,000*(1+r)^30 + > $900,000*(1+r)^22 > > Solve for r…that easy. > > r ~ .03 > > So MWR is (1 + .03)^30 ~ 142.7% ?? damn! Well done!
Bankin’ Wrote: ------------------------------------------------------- > damn! Well done! Too bad it took too long to figure out. At least I understand this method better now.
For some reason I cannot remember correctly how to solve a problem like this on my HP 12C. Any other dinosaurs out there with an HP wanna refresh my memory?
I really just took that equation $2,695,398 = $400,000*(1+r)^30 + $900,000*(1+r)^22 And started with .01, then .02, then .03…it’s a daily return and luckily only had to try 3 times. Not sure how to solve it on the TI, or HP for that matter.
Dont know about HP but in the BA II Plus it is easy to solve using the CF/IRR function: So CF0 = 400,000 C1 = 0 F1 = 7 (since the Cash flow of 900,000 is on the 8th day) C2 = 900,000 F2 = 1 C3 = 0 F3 =21 (assuming 30 day month - 8 - 1) C4 = -2,695,398 IRR CPT
sv102307 Wrote: ------------------------------------------------------- > Dont know about HP but in the BA II Plus it is > easy to solve using the CF/IRR function: > So > CF0 = 400,000 > C1 = 0 F1 = 7 (since the Cash flow of 900,000 is > on the 8th day) > C2 = 900,000 F2 = 1 > C3 = 0 F3 =21 (assuming 30 day month - 8 - 1) > C4 = -2,695,398 > IRR CPT Wow, thanks. Genius.
plyon Wrote: ------------------------------------------------------- > For some reason I cannot remember correctly how to > solve a problem like this on my HP 12C. Any other > dinosaurs out there with an HP wanna refresh my > memory? Can only be done on HP with equal time period. In this case since it isn’t a middle of the month cash flow you have to do it in days. -400 CFo 0 CFj 7 Nj -900 CFj 0 CFj 21 Nj 2,695.398 CFj f IRR Answer is 3%
I had no idea you could do it on BII. Thx mwvt.