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Jayson bought a share of IBM stock for $100 on December 31, 2000. On December 31, 2001, he bought another share for $150. On December 31, 2002, he sold both shares for $140 each. The stock paid a dividend of $10 per share at the end of each year.

To calculate the dollar-weighted rate of return, you need to determine the timing and amount of cash flows for each year, and then set the present value of net cash flows to be 0: - 100 - 140/(1 + r) + 300/(1 + r)

To calculate the time-weighted rate of return:

- Split the overall measurement period into equal sub-periods on the dates of cash flows. For the first year:
- beginning price: $100
- dividends: $10
- ending price: $150

- beginning price: $300 (150 x 2)
- dividends: $20 (10 x 2)
- ending price: $280 (140 x 2)

- Calculate the holding period return (HPR) on the portfolio for each sub-period: HPR = (Dividends + Ending Price)/Beginning Price - 1. For the first year, HPR
_{1}: (150 + 10)/100 - 1 = 0.60. For the second year, HPR_{2}: (280 + 20)/300 - 1 = 0. - Calculate the time-weighted rate of return:
- If the measurement period < 1 year, compound holding period returns to get an annualized rate of return for the year.
- If the measurement period > 1 year, take the geometric mean of the annual returns.

synner: how do you use IRR function on a TI BAII plus? |

jimmymh: IRR is a function of CF, input your CF then Push IRR then compute. |

rche: Can anyone tell me the exact key stroke to solve for the 17% in the IBM example using the BA II Plus? |

Evgenia1: CFC01=-100 F01=1 C02=-140 F02=1 C03=300 IRR CPT Result: 16.82 |

yly13: shouldn't it be -100-150/(1+r)+300/(1+r)2 |

HBomb: yly13There is a $10 Dividend after the first year also which you add to the $-150. This gives you $-140 instead. |

KenSemer: How do you compute the Time Weighted Rate of Return using BA II Plus? |

clyde: Hi,Can anyone tell me for Time-Weighted, in 2nd yr, the beginning price is 300(150x2)? Yr1 has ending $150. Where does the other 150 come from. Many thanks |

akanimo: clyde, jayson bought a second IBM share at the end of the year which combines with the initial purchase to give 2 shares, both the new share and the old share will be valued at this same new price i.e. 150 x 2 |

sdivietr: how do I calculate the Time wrr if period < 1 year? Compounding of individual HPR means????? |

Taimoor: If the return Time Weighted Rate of Return is less than 1 year the compounded annual return is calculated as follows:e.g a weekly return of 0.2% (1.002)^52 - 1 = 0.1095 or 10.95% note: 52 is used as a power because the return is weekly and their are 52 weeks in a year. |

achu: Geometric Mean formula used with TIME wtd returns, the preferred measure of performance! |

HaTran: What is different betweent money - weighted and dollar - weighted rates of return??? |

vinnybozz: Dollar Weighted Solution is:t=0 first purchase: -100 t=1 dividend on 1st share: +10 2nd purchase: -150 t=2 dividend on 2 shares: +20 (10+10) sale: +280 (140*2) So at t=0, Solve r: -100 + (+10-150)/(1 + r) + (+20+280)/(1 + r)2=0 <=> - 100 - 140/(1 + r) + 300/(1 + r)2=0 |

Gooner7: is there a way to do time-weighted calculation on TI BA II+ ? |

DonAnd: There is a similar example for calculating Money-Weighted(Dollar-Weghted)rate of return on p.246 in the text. |

LONG: For dollar-weighted rate of return I can TI BAII as following and get the same result 16.8154%:CFo=-100 C01=-140 C02=300 IRR=16.8154 and same as: CFo=0 C01=-100 C02=-140 C03=300 IRR = 16.8154 |

poomie83: Long, could you explain why 140 is negative? Also why is the cash flow at end of year 2 $300 when that is the value at end of year 1? And don't we account for the dividends? |

TiredHand: $140 is negative because the dude paid $150 for a second IBM share (unwise) which is -$150, but he received a $10 dividend. $-150 + $10 = $-140. Not that I could do that question in an exam. |

niyongana: in which situation liquidity and maturity cannot be investment constraint illustration by using numerical example |

ran123: Can someone please show how the dollar weighted return example was calculated manually(step by step)?Thanks |

jonan203: can you rephrase your question? |

tshepi: van you share how to do it on the HP12c |

Callie2: HP12C:100[CHS][g][CF1] (price of 1st share) 140[CHS][g][CF1] (price of 2nd share - $10 div) 300[g][CF1] (proceeds plus two $10 div) [f][IRR] =16.8154 |

bschmitt: For BAII Plus, what is F01 and F02 in the calculation please? |

schweitzdm: F01 and F02 refer to the frequency of cash flows. If it only happens once, leave it at 1. |

Inspector: HPR = (Ending price - beginning price + dividends) / beginning price so why do the notes say HPR = (Ending price + dividends)/ beginning price... wtf HPR = ((MV1 - MV0 + D1 - CF1)/MV0) Where: MV0 = beginning market value, MV1 = ending market value, D1 = dividend/interest inflows, CF1 = cash flow received at period end (deposits subtracted, withdrawals added back) |

littlecow: @Inspector: you missed the -1 part. The notes says HPR = (Dividends + Ending Price)/Beginning Price - 1, this is exactly the same as what you have: HPR = (Ending price - beginning price + dividends) / beginning price |

ajshittu: HP 12c Platinum Financial Calculator - IRR Calculation100(CHS)(g)(CF0) 140(CHS)(g)(CFj) 300(g)(CFj) 2(RCL)(n) (f)(IRR) |

kaichan91: Can someone elaborate on the part that talks about inflation/depression of the dollar-weighted rate of return? I'm a little confused about the mathematical relationship of the two. |

Rudger: I dont understand how the square root of 1.06 is 1.26. I get 1.29. ANy help anyone? |

khalifa92: in long time horizons situations? |

gjohnub: Here's how I do it.1.He buys $100 of share on Dec 31, 2000 : so beginning price = $100 2.He buys $150 of share on Dec 31, 2001: so ending value = $150 3. So HPR = (ending- beginning + dividend)/ beginning = (150 - 100 + 10) / 100 = 0.6 4. Then, he sold shares for $140 on Dec 31, 2002. so ending value = $140 and beginning value = $150 from previous year. 5. So HPR = (ending - beginning + dividend) / beginning = (140 - 150 + 10) /150 = 0 6. TWRR = [(1+0.6)(1+0)]^1/2 - 1 ( 1/2 because 2 years ) = 0.26 |

931129: Go over the calculations here. |