Quant Question

CFA Level I
#1

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

#2

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%

#3

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

#4

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

#5

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 !