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Quantitative Methods Q67

0. An investor buys two shares of Heather Corporation for $53 per share. He receives an annual dividend of $3 per share at the end of every year for four years. At the end of fourth year, just after receiving his final dividend, he sells both shares of Heather Corporation for $45 per share. The investor’s money weighted rate of return is closest to:

  • Option : A
  • Explanation : Money-weighted rate of return is the internal rate of return (IRR) of the cash flows resulting from the investment activity. To calculate the money weighted rate of return for the investor, using financial calculator enter the following cash flows: CF0 = (-53 x 2) = - 106, CF1 = 6, CF2 = 6, CF3 = 6, CF4= 6 + (45 * 2) = 96, Compute IRR: IRR = 1.998% ~ 2.0%.
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