Please HELP!! Quant question

CFA Level I
#1

im having a major airhead moment from working 50hrs this past week…i need ur help on this question How did they get the 450 (as P0) in the solution? shoudn’t it be 430 (divident in period 1 $5 + 225 + 200)? An investor buys a share of stock for $200.00 at time t = 0. At time t = 1, the investor buys an additional share for $225.00. At time t = 2 the investor sells both shares for $235.00. During both years, the stock paid a per share dividend of $5.00. What are the approximate time-weighted and money-weighted returns respectively?

A) 7.7%; 7.7%. B) 9.0%; 15.0%. C) 10.8%; 9.4%.

Your answer: A was incorrect. The correct answer was C) 10.8%; 9.4%.

Time-weighted return = (225 + 5 − 200) / 200 = 15%; (470 + 10 − 450 ) / 450 = 6.67%; [(1.15)(1.0667)]1/2 − 1 = 10.8%

#2

t=0 1 share = 200

t=1 1 share dividend =5, cost=200, now price=225 -> 225-200+5/200

at t=1 now you have two shares on hand => 225 ( 2 ) = 450

time 2 you have 2 shares worth 225 each.

#3

Ohhh so wait a min! The additional share that the investor buys, is really the same share (ie. same company) so that when the price at which he buys ($225) is supposed to reflect the price of the 1st one he bought at $200? So the 1st share appreciated to $225?

#4

anyways, i just realized that was a dumb question to ask. Im in panic mode. Thanks cpk!

#5

you rreflected that in your first period HPR when u did (225-200+5)/200 didn’t you?

#6

ye yea i get it now lol thanks so much cpk, you’re a life saver. U should be the CFA Superhero on this forum

#7

Hey

In quants do we need to learn formulas for Pooled interest method in difference of means method ?

#8

Sample size= 29, Distrubution is not normal , Population variance is known. WE can use a) T test b) Z test c) None

#9

Sample size= 29, Distrubution is not normal , Population variance is known. WE can use a) T test b) Z test c) None

#10

C

#11

No, you do not need to memorize the formula, but you do need to know whether to reject/not reject the null hypothesis when you are given the test statistic and critical value.