Geometric average annual total returns

Assignment Help Finance Basics

Reference no: EM1345075

Consider the following annual period-by-period returns for an "open-ended" commingled real estate fund (CREF), an investment vehicle for institutional investors. Investors can put capital into, and withdraw capital out, of this type of fund on the basis of the appraised value of the assets in the fund, which are regularly and frequently reappraised. Investors purchase "units" in the fund in the same way you and I buy units of open-ended stock or bond mutual funds.

Unit Value Income Paid
at end of yr. out per unit (end of year)
2009: $100 -
2010: 115 $5.00
2011: 122 6.00
2012: 110 5.50

(a) Determine the annual total holding period (period-by-period) returns for the fund each of the three years 2010, 2011 and 2012 [Help: for the 2010 return the starting value is $100 and ending value is $115 while the fund also returned $5 in income - use this to figure out the total one year holding period return as appreciation plus income yield]

(b) Based on the period-by-period returns you calculated above, evaluate both the arithmetic and geometric (compound) average annual total returns for the 2010-12 period?

(c) Now consider the investment performance of a pension fund that purchased two "units" of the CREF at the end of 2010 and one more "unit" at the end of 2011. The pension fund liquidated its position in the CREF at the end of 2012. Calculate the pension fund's IRR on this investment and describe how and why it differs from the average (mean) period-by-period return to the fund over the 2010-2012 period?

Reference no: EM1345075

Questions Cloud

Manipulating the value of the yuan : Describe the principles on which the Big Mac Index is built and how it might help you as an international manager.

Trade deficits and trade surpluses : Many individuals believe that trade deficits are troubling economic condition which points out weakness in economy while trade surpluses are sign of strength and rising prominence for economy.

What would be the cost of retained earnings equity : Explain what would be the cost of retained earnings equity for Tangshan Mining if the expected return on U.S. Treasury Bills is 5.00%, the market risk premium is 10.00 percent, and the firm's beta is 1.3

Tariff and quota-impact of trade surplus-trade deficit : What is the difference between a tariff and a quota? What is the impact of a trade surplus?

Geometric average annual total returns : Describe how and why it differs from the average (mean) period-by-period return to the fund over the 2010-2012 period - evaluate both the arithmetic and geometric average annual total returns for the 2010-12 period?

Describe the current account balance the capital account : describe the current account balance, the capital account balance, and the official settlements account balance.

What is the temperature of the resulting mixture in k : Two balls undergo a perfectly elastic head-on collision, with one ball initially at rest. If incoming ball has a speed of 200 m/s. What is the final speed of the incoming ball if it is much more massive than stationary ball.

What is the magnitude of the acceleration of rock : A dolphin in seawater at a temperature of 25 °C emits a sound wave directed toward the ocean floor 246 m below. How much time passes before it hears an echo? (The speed of sound in ocean water is 1533 m/s.)

Illustrate what price should he charge each group if he need : Illustrate what price should he charge each group if he needs to maximize revenue collected from ticket sales.

User Account

All Pages