John began his investing program with a $5,500 initial investment.The table below recaps his returns each year as well as the amounts he added to his investment account.What is his dollar-weighted average return?

A) 1.5 percent
B) 1.8 percent
C) 2.0 percent
D) 2.2 percent
E) 2.6 percent

Question

John began his investing program with a $5,500 initial investment.The table below recaps his returns each year as well as the amounts he added to his investment account.What is his dollar-weighted average return?

A) 1.5 percent 
B) 1.8 percent 
C) 2.0 percent 
D) 2.2 percent 
E) 2.6 percent

Quizplus · Accepted Answer

Using the Cash Flow worksheet in a financial calculator, the cash flows to be entered are:
CF0 = -5500
CF1 = -2000
CF2 = -2600
CF3 = -3000
CF4 = -900
CF5 = 15359.31 (see calculations below)
Solve for IRR = 2.6 percent
5500 × (1.085) = 5967.50
(5967.50 + 2000) × (0.95) = 7569.13
(7569.13 + 2600) × (1.045) = 10626.74
(10626.74 + 3000) × (1.09) = 14853.14
(14853.14 + 900) × (0.975) = 15359.31

John Began His Investing Program with a $5,500 Initial Investment