Question

$7,000,000.00 is invested at the beginning of August. On August 17 another $200,000.00 is invested in the same account. At the end of August, the account is worth $7,350,000.00. The cash-flow adjusted rate of return for August is

Answer 1

Cash flow adjusted rate of return = [(value at month end - (Days between new investment and month end / 31) * Amount invested] / [Amount invested initially + (31 - ((days between month beginning and new investment))/31) * new investment] - 1

Cash flow adjusted rate of return = [(7350000 - (17 / 31) * 200000] / [7000000 + ((31 - 17)/31) * 200000] - 1

Cash flow adjusted rate of return = [(7350000 - 109677.42] / [7000000 + 90322.58] - 1

Cash flow adjusted rate of return = [(7240323.58] / [7090322.58] - 1

Cash flow adjusted rate of return = 1.02115 - 1

Cash flow adjusted rate of return = 2.12%