Page 33 - FINAL CFA SLIDES JUNE 2019 DAY 2
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LOS 7.d: Calculate and compare the money-weighted and
time-weighted rates of return of a portfolio and evaluate the Session Unit 2: Discounted Cash Flow Applications
performance of portfolios based on these measures.
Step 2: Set PC of inflows = PV of outflows
Step 3: Solve for r:
The intuition here is that we deposited $100 into the account at t = 0, then added $118 to the account at t = 1 (which, with
the $2 dividend, funded the purchase of one more share at $120), and ended with a total value of $264.
Financial calculator (IRR) CF0 = +100; CF1 = +120 – 2 = +118; CF2 = –260 + –4 = –264
