Question

A stupid question… Assumean investor buys a share of stock for \$100 at t =oand at the end of the next year (t=1), she buys an additional share for \$120. At the end of year2, the investor sellsbothshares for \$130 each. At the end of each yeari~theholding period,the stock paid a \$2.00 per share dividend. What is the money-weighted rate of return? While calculating the inflow and outflow, why the divident \$2.00 is calculated as outflow i/o inflow?

Money weighted considers timing and amount of inflows/outflows. Time weighted does not. CF0=-100, CF1= net of 118 (price of stock, 120- dividend received, 2), for a period of F1=1, then CF2 = inflow of 2*(130+2)=264, for 1 period, solve for IRR = 13.86

Is there a dividend received for To stock bought?

In year 1? yes, it says each year it receives a \$2 dividend.

Yes, I also got 13.86%. There were 3 dividends paid. Question, what is the time-weighted for this?

[(1+(120-100)/100)*(1+(130-120)/120)]^.5-1=14.02?

I get To = -98, you don’t get a dividend on this share? T1 = -118 T2 = 264

t0 value = \$100 t1 value= \$122 HPR=22% t1 value= \$122 t2 value = \$132 HPR=8.20% Twr = 14.89%, unless I missed something.

… dividend comes at end of year.

I have done: [(1+(120-100+2)/100))x(1+(130-122+2)/122)]^0.5=14.89%

The dividend is an inflow. You pay 120 for the stock, not 122 when you buy it in the market. At the end of the term, you sell the stock at 130, not at 132 a piece.

map1 Wrote: ------------------------------------------------------- > The dividend is an inflow. You pay 120 for the > stock, not 122 when you buy it in the market. At > the end of the term, you sell the stock at 130, > not at 132 a piece. But the formula for the HPR is: (Pt - Pt-1 + Dt) /Pt-1 so in this case I think we should use this one.

just like the problem the other day…

But adding \$2 should decrease what you pay for it for an outflow, not increase it, right? Again, why is there not a dividend on the first share?

map1 Wrote: ------------------------------------------------------- > just like the problem the other day… …I dont remember… so basically you disagree?

No, I think you are right. Not sure, but you got me with the HPY:))

map1 Wrote: ------------------------------------------------------- > No, I think you are right. Not sure, but you got > me with the HPY:)) Lol! Map how are you feeling? I feel very tired… I have just scared I will not remember a damn on the exam day!

kind of sick to the stomach when i think about it:) I should heat the books, but I rather hang around here:)

The time-weighte-rate is [(1.22)(1.10)]°·5 - 1 =15.84% Bon courage to every one!

How do you come up with 15.84%?