Time weighted rate of return
Hi, I understand that this post may not belong here but I am desperate! So my teacher gave me this assignment, have tried to ask her but she gives me the same answer which takes me no where. Was hoping someone here might know what I am doing wrong because I cant. Havent been able to sleep for three days because of this. Should be a simple mistake but I just cant figure it out.
I am supposed to calculate:
a) the yearly weighted rate of return for each fund (not included in example 5.5)
b) the yearly total weighted RoR for all funds
c) the portfolio’s average RoR for all years
So I can answer which of the three portfolio allocations have the most risk ect.
My problem is with a), I am following the formula the textbook is given and what I have understood from internet but I still cant figure it out.
I am going to calc the yearly weighted rate of return. So I use the geometric average/ time weighed rate of return.
Forumla from book:
(1 + .10) × (1 + .25) × (1 − .20) × (1 + .20) = (1 + rG)4
The left-hand side of this equation is the compounded year-end value of a $1 investment earning the four quarterly returns. The right-hand side is the compounded value of a $1 investment
earning rG each quarter. We solve for rG:
rG = [(1 + .10) × (1 + .25) × (1 − .20) × (1 + .20)]1/4 − 1 = .0719, or 7.19%
So If portfolio 1 of mine is supposed to invest 15% in AWEIX this is the formula:
((15000+0.8)(15000+2.31)(15000+3.48)*(15000+2.8))^(1/4)-15000=2.3
And for the next portfolio I am going to invest 20% in AWEIX then I do this:
((15000+0.8)(15000+2.31)(15000+3.48)*(15000+2.8))^(1/4)-15000=2.3
So the answer is the same but how can I get different numbers at my portfolios?
B) is b) the yearly total weighted RoR for all funds
Should I just add all the numbers for each year or is this the part that I am doing wrong and have to include the sum/% I am investing?
Thanks.