The Mercury Company is a fixed income management firm that manages
The Mercury Company is a fixed-income management firm that manages the funds of pension plan sponsors. For one of its clients it manages $200 million. The cash flow for this particular client’s portfolio for the past three months was $20 million, ($8 million, and $4 million. The market value of the portfolio at the end of three months was $208 million.
Answer the below questions.
(a) What is the dollar-weighted rate of return for this client’s portfolio over the three-month period?
(b) Suppose that the $8 million cash outflow in the second month was a result of withdrawals by the plan sponsor and that the cash flow after adjusting for this withdrawal is therefore zero. What would the dollar-weighted rate of return then be for this client’s portfolio?
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