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Series X Question X2.7

J

johnpe21

Member
Can somebody please expain parts (b) and (c)? I find it extremely difficult to understand which ratios i should take to calculate the TWRR.

For example, how do we seperate the timeline to see which funds to take? Do we see when the cashflows exists and then see the funds value before and after it? For example why do we take here the ratio (5.1-0.8)/4.2 and not (5.1-0.8)/(4,6)? How do we judge?

I also find it difficult to calculate the linked annual rate of return. Do we see again when we have a cashflow and if yes we accumulate it to find the interest rate?

Thanks a lot
 
johnpe21 said:
Can somebody please expain parts (b) and (c)? I find it extremely difficult to understand which ratios i should take to calculate the TWRR.

For example, how do we seperate the timeline to see which funds to take? Do we see when the cashflows exists and then see the funds value before and after it? For example why do we take here the ratio (5.1-0.8)/4.2 and not (5.1-0.8)/(4.6)? How do we judge?
Click to expand...

We calculate the growth/accumulation factors between each of the cashflows by calculating:

(end balance)÷(start balance)

In this particular case we have the balance of 5.1 after the cashflow (whereas every other question has given the balance before).

We have a single cashflow on 30/06/04. So we have two sections that we have to find the growth/accumulation factors in: 1/1/02 to 30/06/04 and 1/07/04 to 31/12/04.

Hence we use 4.2 in the whole section from 1/1/02 to 30/06/04 as this was the start balance for this section.

johnpe21 said:
I also find it difficult to calculate the linked annual rate of return. Do we see again when we have a cashflow and if yes we accumulate it to find the interest rate?
Click to expand...

For the LIRR you calculate the MWRR (=IRR) for each of the sub-intervals and then link them together by multiplying them and finding the "average" rate per year.
 
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