Jim began his investing program with a $4,000 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?
$$\begin{array} { c l c }
\text { Time } & \text { Investment } & \text { Return } \
0 & \$ 4,000 & 10\%\
1 & \$ 2,800 & -5\% \
2 & \$900 &2\% \
3 & \$ 1,600&8\% \
4 & \$ 2,100 &-3\% \
5 & \$ 2,400 &6\%
\end{array}$$
A)1.6%
B)2.2%
C)2.6%
D)3.2%
E)3.6%

Question

Jim began his investing program with a $4,000 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?
$$\begin{array} { c l c } 
\text { Time } & \text { Investment } & \text { Return } \
0 & \$ 4,000 & 10\%\
1 & \$ 2,800 & -5\% \
2 & \$900 &2\% \
3 & \$ 1,600&8\% \
4 & \$ 2,100 &-3\% \
5 & \$ 2,400 &6\%
\end{array}$$
A)1.6%
B)2.2%
C)2.6%
D)3.2%
E)3.6%

Quizplus · Accepted Answer

The dollar-weighted average return considers the timing and amount of cash flows. It is calculated by solving for the internal rate of return (IRR) that equates the present value of cash inflows and outflows. In this case, the IRR is approximately 2.6%.

Jim Began His Investing Program with a $4,000 Initial Investment