ACTSC231Tutorial2

ACTSC231Tutorial2 - The simple interest approximation b....

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ACTSC 231 Tutorial 2 Oct 13, 2009 The ACTSC231 Mutual Fund has value today of $20,000. Six months later, the value is $21,000, and $10,000 is withdrawn. Eight months after that, the value is $16,000 and $X is deposited. Ten months later (so two years after the start), the value is $22,000. Assume a month is exactly 1/12 of a year. 1. Set up an equation of value to find X (rounded to the nearest $1000) if the exact annual dollar weighted rate of return is 21.46425%. Keep this X for the next three questions. 2. Find the approximate annual dollar weighed rate of return using a.
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Unformatted text preview: The simple interest approximation b. The midpoint rule (Remember that when you use the approximations like this, you are really finding the rate for the two year period. Then convert it to an annual rate.) 3. Find the time weighted rate of return over the two years . Then find the equivalent annual effective time weighted rate of return. 4. Why is the annual time weighted rate in 3 bigger than the dollar weighted rates? What does that tell us about the timing of the cashflows? 5. What would X have to be to have the annual time weighted rate of return be 20%?...
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