John Began His Investing Program with a $6,500 Initial Investment

question 19

Multiple Choice

John began his investing program with a $6,500 initial investment. The table below recaps his returns each year as well as the amounts he added to his investment account. What is his dollar-weighted average return?
$$\begin{array} { c c c } \text { Time } & \text { Investment } & \text { Return } \\0 & \$ 6,500 & 7.5\% \\1 & \$ 2,500 & - 4.0 \%\\2 & \$ 3,100 & 5.0\% \\3 & \$ 3,000 & 8.0\% \\4 & \$ \quad 800 & - 1.5\%\end{array}$$

• A)1.5%
• B)1.8%
• C)2.0%
• D)2.2%
• E)2.8%

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Definitions:

Cost of Capital

The return rate that a company must earn on its projects to maintain its market value and attract funds.

Variable Cost

Costs that change in proportion to the level of production or sales, such as materials and labor.

Capacity

The maximum amount of work that an organization, system, or machine can produce in a given period.