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Yield  Rates

Interest  Measurement  
of  A  Fund

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effectife dollar-­‐weighted rate of

interest

t=1/2.

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∗ As  of  January  1,  2006,  y ou  have  $500  i n  your  saving  

account.   You  make  a  $200  withdrawal  from  the  
account   on  April     1,  2006.  On  July  1,  2 007,  y ou  d eposit  
$300  back  i nto  the   account.   On   December  31,  2 007,  
the   account   balance  is  $700.  Find  the   annual  effective  
dollar-­‐weighted  rate  of  return   of  this account

∗ As  of  January  1,  2006,  y ou  have  $500  i n  your  saving  

account.   You  make  a  $200  withdrawal  from  the  
account   on  April     1,  2006.  On  July  1,  2 007,  y ou  d eposit  
$300  back  i nto  the   account.   On   December  31,  2 007,  
the   account   balance  is  $700.  Find  the   annual  effective  
dollar-­‐weighted  rate  of  return   of  this  account
∗ A  =  $500,  B  =  $700     C 1/8 =  -­‐$200      C 3/4 =  $300
∗ I  =  B-­‐A-­‐C  =  700-­‐500-­‐(-­‐2 00+300)  =  $100
∗ Two-­‐y ear  effective  rate
I 100
i= = = 0,25
500 + 7 / 8(−200) + 1/ 4(300)
A + ∑ Ct (1 − t )
t

∗ One-­‐y ear   rate  =  (1+0,25)1/2 – 1  =  11.80%

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∗ A  fund  began   the  year  with  $1.500.  A  deposit  of  $300  

was  made  on  september  1  of  that  same  year.  Find  the  
fund  balance  at  the   end  of  that   same  y ear  if  the  
annual   effectife  dollar-­‐weighted  rate  of  return   is  12.5%

∗ A  fund  began   the  year  with  $1.500.  A  deposit  of  $300  

was  made  on  september  1  of  that  same  year.  Find  the  
fund  balance  at  the   end  of  that   same  y ear  if  the  
annual   effectife  dollar-­‐weighted  rate  of  return   is  12.5%

∗ A  =  $1500,  B  =  ?    C 2/3 =  $300     i  =  0,125

∗ I  =  B-­‐A-­‐C  =  B-­‐1500-­‐(300)  =  B-­‐1800
∗ Two-­‐y ear  effective  rate
I B − 1800
i= = = 0,125
1500 + 1/ 3(300)
A + ∑ Ct (1 − t )
t
∗ B  =  $2.000

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Time-­‐weighted  Method

Time-­‐weighted  Method

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