Question

On January 1, 1997, Brian’s stock portfolio is worth $100,000. On September 30, 1997, $5,000 is withdrawn from the portfolio, and immediately after this withdrawal the portfolio has a value of $105,000. Twelve months later, the value of the portfolio is $108,000, and Brian adds $3,000 worth of stock to his portfolio. On December 31, 1998, the portfolio is worth $100,000. What is the two-year time-weighted rate of return for Brian’s stock portfolio?

Answer 1

1.93%

Step-by-step explanation:

Time weighed rate can be calculated by using the formula below

TWR = [(1+HPR1)+(1+HPR2)+(1+HPR3) ...(1+HPRn)

TWR = [(1+HPR1)+(1+HPR2)+(1+HPR3) ...(1+HPRn)HPR = (End value - initial value)/end value

For HPR1:

End value = 110000

Initial value = 100000

(110000-100000)/100000

= 10000/100000

= 0.1

1 + 0.1 = 1.1

For HPR2

End value = 108000

Initial value = 105000

3000/105000

= 0.0286

1 + 0.0286

= 1.0286

For HPR3

End value = 100000

Initial value = 108000 + 3000 that was added to make it 111000

(100000-111000)/111000

= -0.0991

1-0.0991

= 0.9009

TWR = (1.1*1.0286*0.9009)-1

= 0.01933

0.0193 x 100

= 1.93%