XYZ stock price and dividend history are as follows: Year Bebinning -of -Year -P

Question

XYZ stock price and dividend history are as follows: Year Bebinning -of -Year -Price Dividend -paid -at- Year- End 2010 $100 $4 2011 $110 $4 2012 $90 $4 2013 $95 $4 1,What is the arithmetic average rate of return? And Geometric average of return ? 2, Use the same information as in Question#3. Suppose that an investor buys three shares of XYZ at the beginning of 2010, buys another two shares at the beginning of 2011, sells one share at the beginning of 2012, and sells all four remaining shares at the beginning of 2013. What is the dollar-weighted rate of return (IRR)? Your answer should be in percentages and accurate to the hundredth.

Explanation / Answer

At the end of the year the appresiation is below: 2005: 330-300+3*4 = 42 2006: 450-550+5*4 = -80 2007: 380-360 +4*4 = 36 return is calculated as appreciation over the initial value of the portfolio: 2005: 42/300 = 14% 2006: -80/550 = -14.545% 2007: 36/260 = 10% arithmetica average of the nubers above (14%--14.545%+10%)/3=3.15% geometric average = -1+[(1+0.14)*(1-0.14545)*(1+0.1)]^(1/3) = 2.33% For Dollar return -0.17% you need to use Excell or other software after you get the cash flow, see below Cash flow: 2005 : -300 2006: -208 2007: 110 2008 : 396 Now use =IRR() function the answer will be -0.17%

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