John began his investing program with a $5,500 initial investment.The table below recaps his returns each year as well as the amounts he added to his investment account.What is his dollar-weighted average return?

A) 1.5 percent
B) 1.8 percent
C) 2.0 percent
D) 2.2 percent
E) 2.8 percent

Question

John began his investing program with a $5,500 initial investment.The table below recaps his returns each year as well as the amounts he added to his investment account.What is his dollar-weighted average return?

A) 1.5 percent 
B) 1.8 percent 
C) 2.0 percent 
D) 2.2 percent 
E) 2.8 percent

Quizplus · Accepted Answer

Using the Cash Flow worksheet in a financial calculator, the cash flows to be entered are:
CF0 = -6500
CF1 = -2500
CF2 = -3100
CF3 = -3000
CF4 = -800
CF5 = 17615.61 (see calculations below)
Solve for IRR = 2.8 percent
6500 * (1.075) = 6987.50
(6987.50 + 2500) * (0.96) = 9108.00
(9108.00 + 3100) * (1.05) = 12818.40
(12818.40 + 3000) * (1.08) = 17083.87
(17083.87 + 800) * (0.985) = 17615.61

John Began His Investing Program with a $5,500 Initial Investment