Suppose that an investor opens an account by investing $1000. At the beginning o

Question

Suppose that an investor opens an account by investing $1000. At the beginning of each of the next four years, he deposits an additional $1000 each year, and then he liquidates the account at the end of the total five-year period. Suppose that the yearly returns in this account, beginning in year 1 are as follows: 12%, 5%, 8%, -7%, and -14%. Calculate the investor's dollar-weighted average return for this five-year period. IF POSSIBLE CAN YOU SHOW THE STEPS ON A TI-83 OR A HP 10BII+.. i KNOW HOW TO DO IT MATHEMATICALLY I JUST NEED TO KNOW THE STEPS ON ONE OF THOSE TWO CALCULATORS

Explanation / Answer

Let the yearly interest rate be i (as a fraction, e.g. a rate of 6% would correspond to i=0.06), the amount of the principal be P, the number of years be n, and the amount after n years be A. Then A = P(1+ni). If you want to know what principal to deposit in order to have an amount A after n years at interest rate i, that principal is called the present value, and is given by P = A/(1+ni). To find the interest rate i, use i = ([A/P]-1)/n. To determine how many compounding periods are needed to reach a given amount, n = ([A/P]-1)/i.

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