Help screen TWR example calculation confusion

[michael]

Hi Mark,

Below is pasted from your TWR help screen. I highlighted two of the #'s in red at the bottom. Are the amounts reversed? Should EMV2 = $2500 and BMV 3= $2550?

Thanks,
Michael


Example Calculation:
Assume we are calculating the 6 month (non-annualized) TWR ending on 12/31/2009. The date range for this yield term would be 7/1/2009 through 12/31/2009, inclusive of gains on both the starting and ending dates. The following hypothetical details are used in this example:

Market value at beginning of 7/1/09: $1,000



Purchased additional $1,200 on 8/13/09

Market value at end of 8/13/09 was $1,200 before the new purchase, market value was $2,400 after purchase



Received a cash dividend on 9/30/09 for $50

Market value at end of 9/30/09 was $2,500 (not counting the dividend)



Market value at end of 12/31/09: $2,600



No accrued interest.

BMV1 = 1000; EMV1 = 1200; R1 = 20%

BMV2 = 2400; EMV2 = 2550; R2 = 6.25%

BMV3 = 2500; EMV3 = 2600; R3 = 4%

[Mark]

Hi Michael,

The online help is correct as stated, the numbers are not reversed. The way you can think about this is that the benefit of the dividend is being reflected in the period where it was received (BMV2 -> EMV2), so the EMV2 includes the dividend amount. The dividend went out of the investment, so for the third period, you started with only $2500 working for you, so BMV3 is $2500. You didn't have $2550 working for you, only $2500, which resulted in the final value of $2600.