A pension fund that begins with $500,000 earns 15% the first year and 10% the second year.At the beginning of the second year,the sponsor contributes another $300,000.The dollar-weighted and time-weighted rates of return,respectively,were

Question

Quizplus · Accepted Answer

The time-weighted rate of return is calculated by averaging the returns over the periods, which is (15% + 10%)/2 = 12.5%. The dollar-weighted rate of return considers the timing of cash flows. With the additional $300,000 contribution at the beginning of the second year, the dollar-weighted rate of return is approximately 12.1%.

A Pension Fund That Begins with $500,000 Earns 15% the First