Jane Smith selects a portfolio manager, John Jones, and tells him that she desires a 100% domestic equity allocation. She invests $100,000. The first year, her return is 12%. The second year, she earns 20%, and at the end of the second year, she takes some profits by withdrawing $20,000. The third year the market declines 15%. In the forth year, the market is up 25%. What is her dollar-weighted return? a. 5.00% b. 9.44% c. 9.86% d. 9.32% This is a question from Stalla Passmaster. They say the answer is C, but i could not understand their explanation … can somebody plz help me understand this Thanks Aby

i dont have my calc, but when i plug in CF0 = -100, Cf2=20,CF4=121.55 into Excel it gives me an irr of 9.865%

Using the calculator input following CF0 = 100,000 CF1 = 0 CF2 = (-) 20,000 CF3 = 0 CF4 = (-) 121,550 Calculate IRR…9.8646% The key here is to focus on cashflows only while calculating the IRR (money weighted return) Calculation for CF4 = Year 0 = 100,000 Year 1 = 1.12*100,000 = 112,000 Year 2 = 1.2 * 112,000 = 134,400 - 20,000 = 114,000 Year 3 = 0.85 * 114,000 = 97,240 Year 4 = 1.25 * 97,240 = 121,550

Aby Wrote: ------------------------------------------------------- > Jane Smith selects a portfolio manager, John > Jones, and tells him that she desires a 100% > domestic equity allocation. She invests $100,000. > The first year, her return is 12%. The second > year, she earns 20%, and at the end of the second > year, she takes some profits by withdrawing > $20,000. The third year the market declines 15%. > In the forth year, the market is up 25%. What is > her dollar-weighted return? > > a. 5.00% > b. 9.44% > c. 9.86% > d. 9.32% > > This is a question from Stalla Passmaster. They > say the answer is C, but i could not understand > their explanation … can somebody plz help me > understand this > > Thanks Aby —might be better if you post their answer and specify what is it with their answer you don’t understand… keep in mind money weight return is just IRR

Thanks DelhiRocks ! Stalla only mentioned this – Using the calculator input following CF0 = 100,000 CF1 = 0 CF2 = (-) 20,000 CF3 = 0 CF4 = (-) 121,550 Calculate IRR…9.8646% and i was wondering how they got 121,550 … Its clear now. Thanks everybody !