After the second meeting, Joe decided that it may be better to invest with Sarah in stages
Question:
After the second meeting, Joe decided that it may be better to invest with Sarah in stages instead. Joe opened an account with Sarah and placed an initial amount of $800,000 with Sarah at the beginning of the April. He then placed an additional amount of $200,000 with Sarah at end of day 20. At this point his account was valued at $1,050,000. By the end of April, Joe's account was worth $1,300,000. Joe contacts Sarah at that point to find out how his portfolio had performed for the month.
(a) Calculate the portfolio's time-weighted return for the month of April.
(b) Joe also wonders about the portfolio's money-weighted return and Sarah guesses that the effective (daily compounded) money-weighted for April is 30.88% or 34.88%. Using Sarah's guesses, estimate the portfolio's money-weighted return for the month of April.
(c) Sarah is expecting strong performance in the second half of May and Joe to inject substantial capital around mid-May. If Sarah had a choice, would she prefer to present the time-weighted or money-weighted return for May? Explain your answer.
Data Analysis and Decision Making
ISBN: 978-0538476126
4th edition
Authors: Christian Albright, Wayne Winston, Christopher Zappe