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 $ 140 150 150 Action Buy 3 shares Sell l share Sell l share Sell l share 150 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 % c. Calculate the dollar-weighted average return on this portfolio. (Do not round intermediate calculations. Round your answer to 2 decimal places.) Dollar-weighted average return

Answer 1

- : X fix =D3/B3 D F Total return in $ (Ending price Beginning price+Dividends) Year 0 $ - 1 $ 140.00 2 $ 150.00 3 $ 150.00 Ending price $ 140.00 $ 150.00 $ 150.00 $ 150.00 Holding period return in % (Ending price-Beginning price+Dividends)/Begininng price 0.00% 7.14% 0.00% 0.00% 10.00 $ $ $ Average return 2.38% =AVERAGE(E3:E5) Geometric returi 2.33% =((1+E3)*(1+E4)*(1+E5))^(1/3)-1|| Dollar-weighted rate of return Year 3.53% 0 Cash flow -420 =-140*3 150 150 150 17 19 Rate of return 3.53% =IRR(B14:B17)

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