Chap 12

Question 1

NPV

Answer 1

Net present value
Discount cash inflow - discount cash inflow

Discount by 1/(1+i)^t

Question 2

IRR

Answer 2

Internal rate of the return

Set NPV equal to 0 and find I that satisfies

Question 3

Accumulated profit

Answer 3

Accumulate cash inflows - outflows

Opposite to NPV

Question 4

Money weighted return

Answer 4

Set accumulated cash flows equal to final fund value and solve to find i

Question 5

Time weighted return

Answer 5

Multiples fund values after cash flows divided by fund value before the cash flow plus the cash flow

Question 6

Linked internal rate of return

Answer 6

Similar to money weighted return but split into smaller periods e.g years
Set final fund value at end of period equal to accumulated cash flows and find i for each period. Multiply (1+i)’s at end to find i