A fund manager has £500m to invest of which 80% is invested into an equity fund.

Question

A fund manager has £500m to invest of which 80% is invested into an equity fund. The remaining 20% is invested in a separate cash fund. On the last day of each quarter, further money is received or taken out of the funds in accordance with the table below. This money is invested/removed in the same proportion as the original investment so e.g. the £200m further money received in the second quarter of 2016 is actually received on 30/6/16 and £160m of this amount is invested in the equity fund and £40m is invested in the cash fund Date 1/1/2016 1/4/2016 1/7/2016 1/10/2016 1/1/2017 Further money received/taken out in the uarter starting on: (im 120 + 12.5r 200 -125 75 The value of the equity fund in 2016 is as follows: Value of equity fund (£m) 400 535+12.5x 550 450 520 Date 1/1/2016 1/4/2016 1/7/2016 1/10/2016 /1/2017 The cash fund grows at a rate of 2.25% per annum during each of the first two quarters of 2016 and at a rate of 0.5% per annum during each of the last two quarters of 2016 a) Calculate the effective annual money-weighted rate of return on each of the equity fund, the cash fund and the total combined fund in 2016 b) Calculate the effective annual time-weighted rate of return on each of the equity fund, the cash fund and the total combined fund in 2016 [51

Explanation / Answer

500 M euros out of which 80% invest in equity fund which means 400 m euros rest 100 m euros is invested in cash fund now refer to the table

1/4/2016

growth is 2.25% p.a during first 2 quarters which means if equity is 80 then cashfund is 20

20m euros *2.25% =0.45m euros is retuns during first 2 quarters

and last 2 qtrs growth is .50% returns is 20m * .5% =0.1m euros

Date Value of equity fund

1/4/2016

400 1/7/2016 535 1/10/2016 550 1/1/2017 450

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