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 $100 million.

Answer 1

Arithmetic average = (-3.5% + 7.1% + 2.8%)/ 3

Arithmetic average = 2.13%

Quarterly Geometric return = ((1 - 3.5%) * (1 + 7.1%) * (1 + 2.8%))1/3 - 1

Quarterly Geometric return = (1.0204) - 1

Quarterly Geometric return = 2.04%

Dollar weighte return

Assets under management at beginning of each month | 100.00 | 103.80 | 107.37 HPR -3.50% 7.10% 2.80% Investment profit during the month (HPR * Assest) -3.5 | 7.3698 3.0063544 Net inflows 7.3 -3.8 Assets under management at end of each month 103.80107.37 110.38 O

	0	1	2	3
Net Cash Flow	-100	7.3	-3.8	110.38

Initial portfolio value can be considered as outflow and ending portfolio value can be considered inflow.

IRR:

-100 = 7.3/ (1 + IRR) - 3.8/ (1 + IRR)2 + 110.38/ (1 + IRR)3

This is the 3 rd degree equation, so we need to use financial calculator:

IRR = 4.58%