What are the arithmetic and geometric average time-weighted

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XYZ stock price and dividend history are as follows:

Year

Beginning-of-Year Price

Dividend Paid at Year-End

1998

$100

$4

1999

120

4

2000

90

4

2001

100

4

An investor buys three shares of XYZ at the beginning of 1998, buys another two shares at the beginning of 1999, sells one share at the beginning of 2000, and sells all four remaining shares at the beginning of 2001.

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 flows for the four dates corresponding to the turns of the year for January 1, 1998, to January 1, 2001. If your calculator cannot calculate internal rate of return, you will have to use trial and error.)

Reference no: EM13567292

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