Suppose you purchase 100 shares of GM stock at the beginning of year 1,and purchase another 100 shares at the end of year 1.You sell all 200 shares at the end of year 2.Assume that the price of GM stock is $50 at the beginning of year 1,$55 at the end of year 1,and $65 at the end of year 2.Assume no dividends were paid on GM stock.Your dollar-weighted return on the stock will be __________ your time-weighted return on the stock.
A)higher than
B)the same as
C)less than
D)exactly proportional to
E)more information is necessary to answer this question

Question

Quizplus · Accepted Answer

Dollar-weighted return takes into account the timing and size of cash flows. Since you purchased more shares at the end of year 1 when the stock price was higher, the overall return will be higher than if you had bought the same amount of shares at the beginning of year 1. Time-weighted return only measures the performance of the investment and is not impacted by the timing or size of cash flows. Therefore, the dollar-weighted return will be higher than the time-weighted return.

Suppose You Purchase 100 Shares of GM Stock at the Beginning