Question

1)

Your client buys 10 shares of stock at time 0 for $49 per share.

At time 1, he receives a dividend of $3 per share, and buys another 10 shares at the new price of $50 per share.

At time 2, he receives a dividend of $3 per share, and sells his entire holding of stock for $58 per share.

What was the client's money-weighted (dollar-weighted) annual return on this position?

Enter answer as a percentage, accurate to two decimal places.

2)

Your client buys 10 shares of stock at time 0 for $45 per share.

At time 1, he receives a dividend of $1 per share, and buys another 10 shares at the new price of $46 per share.

At time 2, he receives a dividend of $1 per share, and sells his entire holding of stock for $53 per share.

What was the client's time-weighted annual return on this position?

Enter answer as a percentage, accurate to two decimal places.

Answer 1

Money-weighted rate of return (MWRR) is a measure of the performance of an asset or portfolio of assets. It is calculated by finding the rate of return that will set the present values of all cash flows and terminal values equal to the value of the initial investment. It is similar to the internal rate of return (IRR).

Generally following are the cash flows we come across

Outflows
1. Initial Cost of Purchase
2. Reinvested dividends or interest
3. Withdrawals

Inflows
1. Sale proceeds of an investment
2. Dividends or interest received
3. Contributions