Quantitative Methods Q70
70An investor purchases 100 shares of a stock. The history of this investment is outlined below:
| Time | Activity | Price per Share ($) | Dividend per Share ($) |
| Begining of Year 1 | Buy 100 shares | 20.00 | |
| End of Year 1 | Buy 20 shares | 22.00 | 2.00 |
| End of Year 2 | 25.00 | 2.50 | |
| End of Year 3 | Sell 120 shares | 24.00 |
Assuming that the investor does not reinvest his dividends, which are tax-free,
the time-weighted rate of return on the investment is
closest to:
- Option : A
- Explanation : The time-weighted rate of return measures the compound growth rate of $1 initially invested in the portfolio over a stated measurement period. TWR = 3√{[(22 + 2)/20] * [(25 + 2.5)/22] * [(24/25)]} – 1 = 0.1292.
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