2. An investment fund was worth $100,000 at time 0. At time 1, the fund value...

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2. An investment fund was worth $100,000 at time 0. At time 1, the fund value increased to $112,000 and a deposit of $30,000 was made. At time 2, the fund value declined to $125,000 and $42,000 was withdrawn. The investment fund was again worth $102,000 at time 3. (a) Compute the annual effective yield rate by the time-weighted method. [4 marks] (b) It can be shown that the annual effective yield computed by the dollar- weighted method is smaller than the one computed in (a). Comment briefly on why the dollar-weighted method produces smaller yield. [4 marks] [Total: 8 marks] 2. An investment fund was worth $100,000 at time 0. At time 1, the fund value increased to $112,000 and a deposit of $30,000 was made. At time 2, the fund value declined to $125,000 and $42,000 was withdrawn. The investment fund was again worth $102,000 at time 3. (a) Compute the annual effective yield rate by the time-weighted method. [4 marks] (b) It can be shown that the annual effective yield computed by the dollar- weighted method is smaller than the one computed in (a). Comment briefly on why the dollar-weighted method produces smaller yield. [4 marks] [Total: 8 marks]