Veronica Madrid began the year with a portfolio valued at $10,000 and made a contribution to and a withdrawal from this portfolio over the next 3 months. Information regarding amounts and dates of these cash flows and the portfolio's market value at various dates is shown below:
Date Contribution (-) or withdrawal (+) Portfolio value
12/31 $0 $10,000
1/31 +956 9,000
2/28 -659 12,000
3/31 0 13,000
a) Calculate the dollar-weighted return for the three-month period (Hint: Unless you have a suitable calculator, you'll have to use trial and error to find the dollar-weighted return. To begin, the monthly dollar-weighted return is less than 10%)
b) Calculate the time-weighted return for the three-month period.
c) Why is the time-weighted return for the quarter less than the dollar-weighted return in this particular problem?