Suppose a mutual fund started with $200 million AUM (assets under management) at the start of...
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Suppose a mutual fund started with $200 million AUM (assets under management) at the start of year 1. The rate of return for year I was -55%. The investment cash inflow (deposit) at the end of year 1 was $1,840 million. The rate of return for year 2 was 40%. Withdrawal (cash outflow) from the fund at the end of year 2 was $400 million. The rate of return for year 3 was 36.07% Required a) Calculate the time-weighted return. (4 points) b) Calculate the money-weighted return. (4 points) c) Which return, the time-weighted return (in part a) or money-weighted return (in part b), was actually earned by the average investor in the mutual? (1 point) Formulas 1. Geometric mean return per period = [(1 + r₂) (1 + r₂) ... (1 + r)]¹/ − 1 2. 1 + Rannual = (1+r₂) (1 + r₂ ) ... (1 + r) − 1 Where Rannual is the annual holding period return and 7₁, 72,...,, are periodic returns during the year 3. SD (average return of independent risks) = SD (Independent Risks) √n Where n is the number of observations or independent risks 4. E(R₂) = Ty + B₁(E[RM] – T₁) Where B₁, as a measure of the security's systematic risk, is calculated on the basis of its definition (illustrated in the examples posted for you on Brightspace) 5. Return over period 1 = -1 P₂ + D₂ Po Suppose a mutual fund started with $200 million AUM (assets under management) at the start of year 1. The rate of return for year I was -55%. The investment cash inflow (deposit) at the end of year 1 was $1,840 million. The rate of return for year 2 was 40%. Withdrawal (cash outflow) from the fund at the end of year 2 was $400 million. The rate of return for year 3 was 36.07% Required a) Calculate the time-weighted return. (4 points) b) Calculate the money-weighted return. (4 points) c) Which return, the time-weighted return (in part a) or money-weighted return (in part b), was actually earned by the average investor in the mutual? (1 point) Formulas 1. Geometric mean return per period = [(1 + r₂) (1 + r₂) ... (1 + r)]¹/ − 1 2. 1 + Rannual = (1+r₂) (1 + r₂ ) ... (1 + r) − 1 Where Rannual is the annual holding period return and 7₁, 72,...,, are periodic returns during the year 3. SD (average return of independent risks) = SD (Independent Risks) √n Where n is the number of observations or independent risks 4. E(R₂) = Ty + B₁(E[RM] – T₁) Where B₁, as a measure of the security's systematic risk, is calculated on the basis of its definition (illustrated in the examples posted for you on Brightspace) 5. Return over period 1 = -1 P₂ + D₂ Po
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a Calculate the timeweighted return The timeweighted return measures the average return earned by ea... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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