An investor’s transactions in a mutual fund and the fund’s returns over a four-year period are provided in the table below:
Year | ||||
1 | 2 | 3 | 4 | |
New investment at the beginning of the year | $2,500 | $1,500 | $1,000 | $0 |
Investment return for the year | -20% | 65% | -25% | 10% |
Withdrawal by investor at the end of the year | $0 | -$500 | -$500 | $0 |
Based on these data, the money-weighted return (or internal rate of return) for the investor is closest to:
B is correct. The calculations are shown below:
The money-weighted return is calculated by solving for i in the equation below: