n investor places $10,000 into a fund on Jan 1, 2024. On Jan 1, 2025 the fund has risen to $12,000 and the investor removes $1,000. On Jan 1, 2026 the fund has fallen to $7,000 and the investor removes $1,000. On Jan 1, 2027 the fund has risen to $10,000 and the investor puts in $1,000. On Jan 1, 2028 the value of the fund is $14,000. a) Calculate the Time-Weighted Rate of Return for this fund as an annual effective rate. b) Calculate the Dollar-Weighted Rate of Return for this fund as an annual effective rate. c) Explain why the values in a) and b) are different.
n investor places $10,000 into a fund on Jan 1, 2024. On Jan 1, 2025 the fund has risen to $12,000 and the investor removes $1,000. On Jan 1, 2026 the fund has fallen to $7,000 and the investor removes $1,000. On Jan 1, 2027 the fund has risen to $10,000 and the investor puts in $1,000. On Jan 1, 2028 the value of the fund is $14,000. a) Calculate the Time-Weighted Rate of Return for this fund as an annual effective rate. b) Calculate the Dollar-Weighted Rate of Return for this fund as an annual effective rate. c) Explain why the values in a) and b) are different.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
An investor places $10,000 into a fund on Jan 1, 2024. On Jan 1, 2025 the fund has
risen to $12,000 and the investor removes $1,000. On Jan 1, 2026 the fund has fallen to
$7,000 and the investor removes $1,000. On Jan 1, 2027 the fund has risen to $10,000
and the investor puts in $1,000. On Jan 1, 2028 the value of the fund is $14,000.
a) Calculate the Time-WeightedRate of Return for this fund as an annual effective
rate.
b) Calculate the Dollar-Weighted Rate of Return for this fund as an annual effective
rate.
c) Explain why the values in a) and b) are different.
risen to $12,000 and the investor removes $1,000. On Jan 1, 2026 the fund has fallen to
$7,000 and the investor removes $1,000. On Jan 1, 2027 the fund has risen to $10,000
and the investor puts in $1,000. On Jan 1, 2028 the value of the fund is $14,000.
a) Calculate the Time-Weighted
rate.
b) Calculate the Dollar-Weighted Rate of Return for this fund as an annual effective
rate.
c) Explain why the values in a) and b) are different.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 4 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education