Question

You are operating a mutual fund which today has $100mil in assets. Your returns and fund...

You are operating a mutual fund which today has $100mil in assets. Your returns and fund flows into/out of the fund are listed below

Time =

Return

Fund Flow $Mil

1

20.00%

5

2

10.00%

3

3

-30.00%

-10

4

10.00%

4

5

-5.00%

-2

Question 1: What is the arithmetic average (mean) of the returns?

Answer is 1%

Question 2: What is the geometric average (mean) of the returns?

Answer is -0.698%

Question 3: What is the dollar-weighted average (mean) of the returns?

Answer question 3

In this question, time means first time, second time..... It's not how many times. Think about the formula of dollar weight average.

I think you need to use IRR.

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Homework Answers

Answer #1
R F A B=A*R C=A+B+F D=1+R
Time Return Fund Flow Beginning Balance Dollar Return Ending Balance 1+Return
1 20.00% 5 100 20 125              1.20
2 10.00% 3 125 12.5 140.5              1.10
3 -30.00% -10 140.5 -42.15 88.35              0.70
4 10.00% 4 88.35 8.835 101.185              1.10
5 -5.00% -2 101.185 -5.05925 94.12575              0.95
SUM 5.00%
Q1 Arithmetic average (Mean) Return 1% (5/5) Average =SUM/(Number of readings)
Q2 Geometric Average of Return=G
(1+G)^5=1.2*1.1*0.7*1.1*0.95
((1.2*1.1*0.7*1.1+0.95)^(1/5))-1     (0.00698)
Geometric Average of Return=G -0.6981%
Q3 Time Cash Flow
0 -100
1 -5
2 -3
3 10
4 -4
5 94.12575
Dollar Weighted Average Return -1.58% (Using IRR function of excel over cash flow)
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