MWRR(IRR) Calculation doubt

CFA Level I Portfolio Management
#1

Found this one a bit tricky from the Portfolio Management section of a mock exam.Does anyone have any inputs on getting around to the answer.

An investor’s transactions in mutual funds and the fund’s returns over a 4 year period are

Year 1

Year 2

Year 3

Year 4

New Investment at the beginning of the year (US$)

2,500

1,500

1,000

0

Investment return for the year

-20%

65%

-25%

10%

Withdrawal by the investor at the end of the year

0

-500

-500

0

Based on this data, the money-weighted return (or internal rate of return) for the investor is closest to

A: 7.50%

B: 2.15%

C: 3.96%

ANSWER:- 3.96%

#2

Yo=(2500)

Y1=(1500)

Y2=(500) At the beginning of the yr 3 he deposits 1000 and at the same time he withdraws 500. so net deposit is 500

Y3=500…same logic here

Y4=4627…this is the ending value of MF…after taking into considering returns, deposits and withdrawls. Now IRR part is easy.

There is another way…but that might not always work.

7.5 is the arithmetic return whereas the 2.15 is time weighted return so C Must be correct.

#3

it should be after considering …

#4

Thanks A_KB