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Bill has been adding funds to his investment account each year for the past 3 years. He started with an initial investment of $1,000. After earning a 10% return the first year, he added $3,000 to his portfolio. In this year his investments lost 5%. Undeterred, Bill added $2,000 the next year and earned a 2% return. Last year, discouraged by the recent results, he only added $500 to his portfolio, but in this final year his investments earned 8%. What was Bill's dollar-weighted average return for his investments?

A. 1.5 percent
B. 2.0 percent
C. 2.5 percent
D.3.0 percent
E. 3.5 percent

Respuesta :

jepessoa

Answer:

D) 3.0 percent

Explanation:

we have to determine the value of Bill's at the end of year 4:

CF0 = -1000

CF1 = -3000

CF2 = -2000

CF3 = -500

CF4 = ? = (((((1000 x 1.1) + 3000) x 0.95) + 2000) x 1.02) + 500) x 1.08 = 7033.93

Now we need to use an excel spreadsheet and the IRR function:

=IRR(-1000,-3000,-2000,-500,7033.93) = 3%

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