CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

An analyst gathers the following information about a common stock investment:

Stock purchase (1 share), 15 January 2012, $86.00
Stock purchase (1 share), 15 January 2013, $94.00
Stock sale (2 shares @106 per share), 15 January 2014, $212.00

The stock does not pay a dividend. The dollar-weighted rate of return on the investment is closest to ______.

A. 11.20%
B. 11.60%
C. 11.90%
Correct Answer: B

The dollar-weighted rate of return is the IRR based on the cash flows related to the investment. In this case, a cash outflow of $86 occurs at t=0, another outflow of $94 occurs at t=1, and an inflow of $212 occurs at t=2. Using a financial calculator, the IRR of these cash flows is 11.60%.

User Contributed Comments 3

User Comment
praj24 How do I work this out on my calculator (BAII Plus)?
jrojasut09 @praj24 Use your CF functions and solve for IRR
msk500 Set our a time-line from Year 0 (15/1/12), to Year 2 (15/1/2014). Record the CFs for each year and calculate the net CF for each year. These are: Year 0 = -86, Year 1 = -94, and Year 2 = +212.

Key strokes: Press CF, 2ND, CE/C:
CF0 = -86 Enter
CF1 = -94 Enter
CF2 = +212 Enter
CPT IRR, CPT = 11.59538
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