Quantitative Methods - Quantitative Methods Section 1
- 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%.
- Option : C
- Explanation : Calculate the outflows and inflows at t = 0, t = 1 and t = 2. Using a financial calculator, calculate the IRR. CF0 = - 85, CF1 = -85, CF2 = 210, CPT IRR = 14.94%.
24. The following table shows the cash flows for a particular portfolio:
| Amounts in $ | Quarter 1 | Quarter 2 | Quarter 3 | Quarter 4 |
| Beginning balance | 2,000,000 | 3,100,000 | 3,800,000 | 4,500,000 |
| Beginning periodic inflow/(outflow) | 500,000 | 450,000 | 200,000 | (350,000) |
| Amount invested | 2,500,000 | 3,550,000 | 4,000,000 | 4,150,000 |
| Ending balance | 3,100,000 | 3,800,000 | 4,500,000 | 4,000,000 |
Which of the following is most likely the annualized time weighted return of
the portfolio?
25. Which of the following statements is inaccurate about a time weighted return?
- Option : B
- Explanation : The time weighted rate of return is not the internal rate of return. Statements A and C are correct.
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