John Wilson buys 150 shares of ABM on 1 January 2002 at a price of $156.30 per share. A dividend of $10 per share is paid on 1 January 2003. Assume that this dividend is not reinvested. Also on 1 January 2003, Wilson sells 100 shares at a price of $165 per share. On 1 January 2004, he collects a dividend of $15 per share (on 50 shares) and sells his remaining 50 shares at $170 per share.
A. Write the formula to calculate the money-weighted rate of return on Wilson”s portfolio.
B. Using any method, compute the money-weighted rate of return.
C. Calculate the time-weighted rate of return on Wilson”s portfolio.
D. Describe a set of circumstances for which the money-weighted rate of return is an appropriate return measure for Wilson”s portfolio.
Describe a set of circumstances for which the time-weighted rate of return is an appropriate return measure for Wilson”s portfolio.