Investments, tenth edition

24.1 

  Dollar-Weighted Return and Investment Performance 

 Every household faces several daunting saving goals, for example, the education of chil-

dren and retirement. Many of these goals allow for tax-sheltered savings, for example, 

IRAs or 401(k) plans for retirement and 529 plans for college expenses. These accounts 

are, by their nature, separated from other household assets. 

 Households have considerable latitude in choices of investment venues and will want to 

check results from time to time. How should they do this? The answer here is quite simple. 

First, the household must maintain a spreadsheet of time-dated cash inflows and outflows. 

It is a simple task to record the current value of the investment account. In this setting, the 

dollar-weighted average over any investment period will yield the effective rate of return 

earned for the period.  

2

    

 To guarantee that you can accomplish this important task, be sure to solve Problem 1 at 

the end of the chapter. See also the nearby Excel Application box.