Homework Answers
Answer b-1.
Based on the given information about buying and selling of shares and the share price on transaction dates, the cash flows can be calculated as per the below table:
| Date | Action | No. of Shares Transacted | Cash Flow | Remarks |
| 01-01-2015 | Buy | 3 | -$306 | 3*$102 |
| 01-01-2016 | Buy | 1 | -$105 | 1*$105 |
| 01-01-2017 | Sell | 1 | $91 | 1*$91 |
| 01-01-2018 | Sell | 3 | $288 | 3*$96 |
Negative cash flow values indicates cash outflow or payment of cash, and positive cash flow values indicates cash inflow or receipt of cash.
Answer b-2.
For computation of dollar-weighted rate of return XIRR formula in spreadsheet can be used. For this purpose, cash flow table created in response to question b-1 needs to be updated with dividend earned at the end of each year. Same is illustrated in the table below:
| Date | No. of Shares Held on Date | Cash Flow | Remarks |
| 01-01-2015 | -$306 | 3 shares purchased | |
| 31-12-2015 | 3 | $9 | Dividend earned on total shares held @ $3 per share |
| 01-01-2016 | -$105 | 1 share purchased | |
| 31-12-2016 | 4 | $12 | Dividend earned on total shares held @ $3 per share |
| 01-01-2017 | $91 | 3 shares sold | |
| 31-12-2017 | 3 | $9 | Dividend earned on total shares held @ $3 per share |
| 01-01-2018 | $288 | 1 share sold | |
| 31-12-2018 | 0 | $0 | Dividend earned on total shares held @ $3 per share |
Now, using the XIRR function as mentioned above, the required Rate of Return comes out to -0.1988%.
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