Question

2. A pension fund portfolio begins with $500,000 and earns 15% the first year and 10% the second year. At the beginning of the second year, the sponsor contributes another $500,000. What were the dollar-weighted rates of return?

Answer 1

Answer:

11.7%

Explanation:

Calculation to determine What were the dollar-weighted rates of return

Dollar-weighted rates of return=$500,000 + $500,000/(1 + r)

Dollar-weighted rates of return= $75,000/(1 + r) + [($500,000+500,000)+(10%*$500,000+$500,000)]/(1 + r)^2

Dollar-weighted rates of return= $75,000/(1 + r) + $1,100,000/(1 + r)^2

Dollar-weighted rates of return= 11.7%;

Therefore The Dollar-weighted rates of return is 11.7%