This is Actuarial Science
Problem 3 - Dollar-weighted and Time-weighted rate of
returns
An investment account has a value of $7000 on 1/1/2014. A deposit
of XX is made on 5/1/2014, a withdrawal of $400 is made on
9/1/2014, and a deposit of $300 is made on 11/1/2014. The balance
on December 31, 2014 is $8074.
Find the amount of the first deposit if the dollar-weighted rate of
return is 6%
X=
Problem 8 - Dollar-weighted and Time-weighted rate of
returns
For an investment account, you are given the following information
during calendar years 2014 and 2015:
Account for 2014
Date | Fund Value Before Activity | Deposit | Withdrawal |
January 1, 2014 | 150 | ||
March 1, 2014 | 165 | 20 | |
July 1, 2014 | 160 | 15 | |
November 1, 2014 | 165 | 15 | |
December 31, 2014 | X |
Account for 2015
Date | Fund Value Before Activity | Deposit | Withdrawal |
January 1, 2015 | X | ||
September 1, 2015 | 197 | 10 | |
December 31, 2015 | Y |
During 2014, the dollar-weighted return equals 8%. During 2015, the
time-weighted return equals 10%. Determine the value of the fund at
the end of 2014 and 2015.
X=
Y=
Problem 10 - Dollar-weighted and Time-weighted rate of
returns
You are given the following information about the activity in 2
different investment accounts:
Account A
Date | Fund Value Before Activity | Deposit | Withdrawal |
January 1, 2014 | 400 | ||
September 1, 2014 | 445 | X | |
November1, 2014 | 425 | 2X | |
December 31, 2014 | 445 |
Account B
Date | Fund Value Before Activity | Deposit | Withdrawal |
January 1, 2014 | 400 | ||
April 1, 2014 | 445 | X | |
December 31, 2014 | 415.5 |
During 2014, the dollar-weighted return for investment account A
equals the time-weighted return for investment account B, which is
equal to ii.
Compute i
Problem 3). Let the amount deposited be x.
Using the dollar-weighted return of 6%, we have
7,000*(1+6%)^1 + x*(1+6%)^(7/12) - 400*(4/12) + 300*(1+6%)^(2/12) = 8,074
x*(1+6%)^(7/12) = 758.917
x = 758.917/1.0346 = 733.56 or 734
Problem 8).
Calculation of X using dollar-weighted return of 8%:
X = 150*(1+8%)^(12/12) + 20*(1+8%)^(10/12) - 15*(1+8%)^(6/12) + 15*(1+8%)^(2/12) = 182.93
Calculation of Y using the time-weight return of 10%:
Time-weighted return = [(balance before deposit/initial balance)*(final balance/balance after deposit)] -1
10% = [(197/182.93)*(Y/198)] -1
Y = 1.10*198*182.93/197 = 202.24
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