Answered step by step
Verified Expert Solution
Link Copied!

Question

00
1 Approved Answer

Suppose the rates of ( realized ) return were 1 0 0 % in the 1 st year, - 5 0 % in the 2

Suppose the rates of (realized) return were 100% in the 1st year, -50% in the 2nd year, 30% in the 3rd year.
(i) If you had invested $1,000 at the beginning of 1st year, invested $2,000 at the beginning of the second year encouraged by the performance in the 1st year, and withdrawn $1,000 at the beginning of the 3rd year discouraged by the performance in the 2nd year, how much would you have had at the end of the 3rd year?
What would have been the annual rate of return on your invested money (i.e., the dollar-weighted average rate of return) over the three-year span? Please show your equation and calculation.
(ii) If you had invested $1,000 at the beginning of 1st year, invested $1,000 at the beginning of the second year, and invested $1,000 at the beginning of the 3rd year, how much would you have had at the end of the 3rd year?
What would have been the annual rate of return on your invested money (i.e., the dollar-weighted average rate of return) over the three-year span? Please show your equation and calculation.
(iii) Comparing (i) and (ii) above, which investment strategy between the two above (i.e., marketing timing vs. constant dollar amount) should you adopt going forward?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access with AI-Powered Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Finance Applications and Theory

Authors: Marcia Cornett, Troy Adair

3rd edition

978-0077861681

Students also viewed these Finance questions

Question

Describe the term 360-degree appraisal .AppendixLO1

Answered: 1 week ago