Question

$5,000,000.00 is invested at the beginning of April. On April 13 another $700,000.00 is invested in the same account. At the end of April the account is worth $5,250,000.00. The cash-flow adjusted rate of return for April is

Answer 1

Days = days between beginning of the month and investment date = 13

Cash Flow adjusted rate of return = ([V1 - (Days / 30) * Cash Flow invested] / [V0 - ((30-Days)/30) * cash flow invested]) - 1

Cash Flow adjusted rate of return = ([5250000 - (13 / 30) * 700000] / [5000000 - ((30-13)/30) * 700000]) - 1

Cash Flow adjusted rate of return = ([5250000 - 303333.33] / [5000000 + 396666.67]) - 1

Cash Flow adjusted rate of return = 4946666.67 / 4603333.33 - 1

Cash Flow adjusted rate of return = 4946666.67 / 5396666.67 - 1

Cash Flow adjusted rate of return = -8.34%