(a)
To calculate:
The geometric average time-weighted
Introduction:
Annual geometric return:
It means a

Answer to Problem 7PS
Explanation of Solution
Given:
Price history of the stocks are given below:
Time | Price | Action |
0 | |
Buy 3 shares |
1 | |
Sell 1 share |
2 | |
Sell 1 share |
3 | |
Sell 1 share |
Calculation of every year return:
Time | Cash flow | Return |
0 | |
|
1 | |
|
2 | |
|
3 | |
|
Calculation of annual geometric return:
(b)
To calculate:
Arithmetic average time-weighted rates of return of portfolio.
Introduction:
Arithmetic return:
An average return of the total years of investment is known as an arithmetic return.

Answer to Problem 7PS
Explanation of Solution
Given:
Price history of the stocks are given below:
Time | Price | Action |
0 | |
Buy 3 shares |
1 | |
Sell 1 share |
2 | |
Sell 1 share |
3 | |
Sell 1 share |
Calculation of every year return:
Time | Cash flow | Return |
0 | |
|
1 | |
|
2 | |
|
3 | |
|
(c)
To calculate:
The dollar-weighted average return of portfolio
Introduction:
Dollar-weighted return:
A return on portfolio or investment which also consider the timing of flows is known as dollar-weighted return.

Answer to Problem 7PS
Dollar-weighted return is equal to
Explanation of Solution
Calculation of cashflow:
Year | Cash flow | Explanation |
0 | |
Three shares purchase at
|
1 | |
one share sold at
|
2 | |
one share sold at
|
3 | |
one share sold at
|
Calculation of IRR
Thus, the dollar-weighted return is equal to internal rate of return which is
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Chapter 18 Solutions
ESSEN.OF INVESTMENTS(LOOSE)W/CONNECT<BI>
- Chee Chew's portfolio has a beta of 1.27 and earned a return of 13.6% during the year just ended. The risk-free rate is currently 4.6%. The return on the market portfolio during the year just ended was 10.5%. a. Calculate Jensen's measure (Jensen's alpha) for Chee's portfolio for the year just ended. b. Compare the performance of Chee's portfolio found in part a to that of Carri Uhl's portfolio, which has a Jensen's measure of -0.25. Which portfolio performed better? Explain. c. Use your findings in part a to discuss the performance of Chee's portfolio during the period just ended.arrow_forwardDuring the year just ended, Anna Schultz's portfolio, which has a beta of 0.91, earned a return of 8.1%. The risk-free rate is currently 4.1%, and the return on the market portfolio during the year just ended was 9.4%. a. Calculate Treynor's measure for Anna's portfolio for the year just ended. b. Compare the performance of Anna's portfolio found in part a to that of Stacey Quant's portfolio, which has a Treynor's measure of 1.39%. Which portfolio performed better? Explain. c. Calculate Treynor's measure for the market portfolio for the year just ended. d. Use your findings in parts a and c to discuss the performance of Anna's portfolio relative to the market during the year just ended.arrow_forwardNeed answer.arrow_forward
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