Question

A manager buys three shares of stock today, and then sells one of those shares each year for the next 3 years. His actions and the price history of the stock are summarized below. The stock pays no dividends. Time Price $ 110 120 120 120 Action Buy 3 shares Sell 1 share Sell 1 share Sell 1 share a. Calculate the time-weighted geometric average return on this “portfolio.” (Do not round intermediate calculations. Round your answer to 2 decimal places.) Geometric average return b. Calculate the time-weighted arithmetic average return on this portfolio. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Arithmetic average return 3.00%

Answer 1

a. Geometric return = 2.94%
b. Arithmetic Return = 3.03%
c. Dollar weighted return is 4.48%

Yene 120-110 Retuen) HPR (Holding period 20-10, 909). r 0 of. S. 110 de Pi 110 120 120 120 120 120 2 3 -where no no of years. a. Time weighted geometric Retuen, = n (+6) (182) (H 3 )-1 s. rate of return - [(1.0909) 3 - 1 E 2.94.). a 9.09+0 to 8+82 +8 di Arthemethic Retuen = 3.03.). G. Dollas weighted Retuen is IRR. (rd) 330 120 - 120 + 120 cu Cl+rd² Citrd) trd) Srd= 4.48%