You are the manager of the Mighty Fine mutual fund. The following table reflects

Question

You are the manager of the Mighty Fine mutual fund. The following table reflects the activity of the fund during the last quarter. The fund started the quarter on January 1 with a balance of $40 million Mighty Fine Mutual Fund Monthly Data (measured at end of month) January February March Net inflows (S million) HPR (96) 6.1 3.50 3.8 6.50 0 2.80 a. Calculate the quarterly arithmetic average return on the fund. (Round your answer to 2 decimal places.) Arithmetic average b. Calculate the quarterly geometric (time-weighted) average return on the fund. (Round your answer to 2 decimal places.) Geometric average c. Calculate the quarterly dollar-weighted average return on the fund. (Round your answer to 2 decimal places.) Dollar-weighted average return 1.93 % 1.85 %

Explanation / Answer

1) Average quarterly return of fund =Total holding period return/ no of periods = ( -3.55% + 6.55%+ 2.80%)/3 = 1.93%

2) Quarterly geometric avergae return on thr fund =  ((1+r1)(1+r2)(1+r3))1/no of period -1 = (1-3.55%)(1+6.55%)(1+2.80%))1/3 -1 = 0.01848 or 1.85%

3. Dollar weighted return (r) for month 3 = inflow + initial investment = 0 + 40 = 40
6.1/(1+r) - 3.8/( 1+r)2 + 40/(1+r)3 = 40
Dollar weighted return = 2.02%
Using Excel function

Best of Luck. God Bless

A B C D 0 1 2 3 1 Initial cashflow -40 6.1 -3.8 40 2 IRR 2.02% IRR(A1:D1)

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