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Four years ago you invested $5M in a new Gig Economy ETF. Two years later you decided to take out $3M to buy a small
Four years ago you invested $5M in a new Gig Economy ETF. Two years later you decided to take out $3M to buy a small house in LA. At the end of four years you take out the remaining cash. These are the returns to the ETF as well as your cash flows:
(End of) Year | Inflows/outflows | ETF return |
0 | -5 |
|
1 |
| 10.2% |
2 | 3 | 8.5% |
3 |
| -4.0% |
4 | 2.85 | -0.2% |
- (15 points) What is the arithmetic average of the returns? What is the geometric average?
- (15 points) Will the dollar-weighted average be higher or lower than the arithmetic average? Explain your reasoning.
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