XYZ s tock pric e a nd di vidend his tory a re a s follo ws:

Year Beginning-of-Year Price Dividend Paid at Year-End 2007 $100 $4 2008 $110 $4 2009 $ 90 $4 2010 $ 95 $4 An investor buys three shares of XYZ at the beginning of 2007, buys another two shares at the beginning of 2008, sells one share at the beginning of 2009, and sells all four remaining shares at the beginning of 2010.

a. What are the arithmetic and geometric average time-weighted rates of return for the investor?

b. What is the dollar-weighted rate of return? (Hint: Carefully prepare a chart of cash fl ows for the four dates corresponding to the turns of the year for January 1, 2007, to January 1, 2010. If your calculator cannot calculate internal rate of return, you will have to use a spreadsheet or trial and error.) LO.1