DollarTime Weighted Forward Rates Dollar Weighted Is the

Dollar Weighted Is the Internal Rate of Return (i. e. yield rate) Using simple

Example • A fund has a starting balance of 100. Three months later the

A fund has a starting balance of 100. Three months later the balance of

Time Weighted Rate of return Calculated by compounding the returns over successive parts of

Forward Rates “A forward rate is an interest rate applicable to a financial transaction

Illustration 3 -year forward rate – deferred 1 year 1 -year forward rate –

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Dollar/Time Weighted + Forward Rates

Dollar Weighted Is the Internal Rate of Return (i. e. yield rate) Using simple interest approximation for partial years.

Example • A fund has a starting balance of 100. Three months later the balance of the fund is 120 and a deposit of 40 is made. Five months after the deposit the balance is 150 and a withdrawal of 60 is made. The balance of the fund at the end of the year 110. Calculate the dollar-weighted rate of return.

A fund has a starting balance of 100. Three months later the balance of the fund is 120 and a deposit of 40 is made. Five months after the deposit the balance is 150 and a withdrawal of 60 is made. The balance of the fund at the end of the year 110. Calculate the dollarweighted rate of return.

Dollar Weighted formula •

Time Weighted Rate of return Calculated by compounding the returns over successive parts of the year.

Forward Rates “A forward rate is an interest rate applicable to a financial transaction that will take place in the future. ” – Investopedia “An m-year spot rate that comes into effect t-years in the future”-SOA

Illustration 3 -year forward rate – deferred 1 year 1 -year forward rate – deferred 2 years 2 -year forward rate – deferred 2 years

Forward rates and Spot rate

Example 1 4% 2 5% 3 5. 5% 4 5. 75% 5 6%

Example-Solution •