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?

A) 1.6 percent
B) 2.2 percent
C) 2.6 percent
D) 3.2 percent
E) 3.6 percent

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?

A) 1.6 percent 
B) 2.2 percent 
C) 2.6 percent 
D) 3.2 percent 
E) 3.6 percent

Quizplus · Accepted Answer

Using the Cash Flow worksheet in a financial calculator, the cash flows to be entered are:
CF0 = -4000
CF1 = -2800
CF2 = -900
CF3 = -1600
CF4 = -2100
CF5 = -2400
CF6 = 15246.78 (see calculations below)
Solve for IRR = 2.6 percent
4000 × (1.10) = 4400
(4400 + 2800) × (0.95) = 6840
(6840 + 900) × (1.02) = 7894.80
(7894.80 + 1600) × (1.08) = 10254.38
(10254.38 + 2100) × (0.97) = 11983.75
(11983.75 + 2400) × (1.06) = 15246.78

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