Quantitative Methods - Quantitative Methods Section 1

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21. Donna Dewberry buys 120 shares of EFL at a price of $75 per share on January 1, 2011. On January 1, 2012, after receiving a dividend of $5 per share, Dewberry sells 60 shares at a price of $80 each. On January 1, 2013, Dewberry receives a dividend of $5 per share on the remaining shares and then sells all of them at $82 each. Which of the following is most likely the money-weighted return on Dewberry’s portfolio?

  • Option : A
  • Explanation : Calculate the outflows and inflows on every significant date:Outflows: On January 1, 2011: 120 shares * $75 per share = $9000 Inflows: On January 1, 2012: Dividend on 120 shares: 120 * $5 per share=$600 Sale of 60 shares: 60 * $80 per share = $4800, Total = $5400 On January 1, 2013 Dividend on remaining 60 shares: 60 * $5 per share = $300 Sale of 60 shares: 60 * $82 per share = $4920 Total = $5220 IRR is the money weighted return which can be calculated using the cash flows: CF0 = -9000, CF1 = 5400, CF2 = 5220, CPT IRR = 11.85% The money weighted return is equal to 11.85%.
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24. The following table shows the cash flows for a particular portfolio:

Amounts in $  Quarter 1Quarter 2Quarter 3Quarter 4
Beginning
balance

2,000,0003,100,0003,800,0004,500,000
Beginning
periodic
inflow/(outflow)

500,000450,000200,000(350,000)
Amount invested 2,500,0003,550,0004,000,0004,150,000
Ending balance  3,100,0003,800,0004,500,0004,000,000

Which of the following is most likely the annualized time weighted return of
the portfolio?

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