An investor opened an account by purchasing 1000 sharws of stock at $42 per share. One year later, these shares were trading at $55/share, and the investor purchased 1000 more shares. At the end of the second year, the shares were trading at $54.00. The time weighted and money weighted rates of return on the account were : Time weighted Money weighted a 13.4% 7.73% b 16.4% 5.26% c 16.4% 7.73% d 13.4% 5.26% Can anyone help me with this? I could not seem to work it out? I tried following an example in the schweser notes, but they based the assumptions on the investor selling the shares at the end of the period.
Time weighted: year 1 return: (55-42)/42=30.95% year 2 return: (54-55)/55=-1.82% [1.3095*0.9818]^(1/2)=13.39%, either A or D Money weighted: initial investment: CF0=-42,000 investment in CF1=-55,000 at end of year 2, CF resulting from the sale of investment would be: 2000 shares*54=108,000 Solve for IRR: that would be 7.73 That’s answer A.
Thanks heaps. I cant believe it. I was did everything right except for the multiplication. I better not make the same mistake in the exam if this type of question comes up. I did however have the fundamentals right.
try one with dividends paid and withdrawals.
Will do mate. I am just going through the questions now. Finding FSA by far the hardest out of all the topics.