Quantitative Methods MCQ - Quantitative Methods Section 1

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?

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%.

22 An investor buys one share of a stock at $85 at t = 0. He buys an additional share for $90 at t = 1. The stock pays a dividend of $5 per share at t = 1 and t = 2. The investor sells both the shares at t = 2 for $100 each. Which of the following is most likely the money weighted rate of return?

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%.

23 An investor buys one share of a stock at $85 at t = 0. He buys an additional share for $90 at t = 1. The stock pays a dividend of $5 per share at t = 1 and t = 2. The investor sells both the shares at t = 2 for $100 each. Which of the following is most likely the time weighted rate of return?

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?

The time weighted rate of return is not the internal rate of return. Statements A and C are correct.