Question

Asked Mar 19, 2019

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For each of the past six quarters, Managers L and M have provided you with the total dollar value of the funds they manage, along with the quarterly contributions or withdrawals made by their clients. (Note: Contributions are indicated by positive numbers, withdrawals by negative numbers.) |

MANAGER L | MANAGER M | |||

Quarter | Total Funds Under Management | Contributions/ Withdrawals | Total Funds Under Management | Contributions/ Withdrawals |

Initial | 500,000 | - | 700,000 | - |

1 | 527,000 | 12,000 | 692,000 | (35,000) |

2 | 530,000 | 7,500 | 663,000 | (35,000) |

3 | 555,000 | 13,500 | 621,000 | (35,000) |

4 | 580,000 | 6,500 | 612,000 | (35,000) |

5 | 625,000 | 10,000 | 625,000 | (35,000) |

For each manager, calculate: | |||||||||

a. Her money-weighted return | |||||||||

b. Her time-weighted return | |||||||||

c. Estimates of her quarterly performance returns using the Dietz approximation method, assuming that contributions/withdrawals are made exactly halfway through the quarter |

Step 1

**a.**

**Calculation of Money Weighted Return: **

The money weighted return can be calculated using a excel function =IRR, which denotes the internal return or interest rate of any investment. **The excel spreadsheet with excel function is shown below:**

Step 2

**The excel spreadsheet workings is shown below:**

Step 3

**b.**

**Calculation of Time Weighted Return:**

To calculate the time weighted return, it is required to calculate the Holding Period Return (HPR) initially. The holding period return is calculated using a ex...

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