MWRR(IRR) Calculation doubt

[rmp10]

Found this one a bit tricky from the Portfolio Management section of a mock exam.Does anyone have any inputs on getting around to the answer.
An investor’s transactions in mutual funds and the fund’s returns over a 4 year period are
Year 1
Year 2
Year 3
Year 4
New Investment at the beginning of the year (US$)
2,500
1,500
1,000
0
Investment return for the year
-20%
65%
-25%
10%
Withdrawal by the investor at the end of the year
0
-500
-500
0
Based on this data, the money-weighted return (or internal rate of return) for the investor is closest to
A: 7.50%
B: 2.15%
C: 3.96%
ANSWER:- 3.96%

 

[A_KB]

Yo=(2500)
Y1=(1500)
Y2=(500) At the beginning of the yr 3 he deposits 1000 and at the same time he withdraws 500. so net deposit is 500
Y3=500..same logic here
Y4=4627….this is the ending value of MF..after taking into considering returns, deposits and withdrawls. Now IRR part is easy.
There is another way..but that might not always work.
7.5 is the arithmetic return whereas the 2.15 is time weighted return so C Must be correct.

 

[A_KB]

it should be after considering …

 

[rmp10]

Thanks A_KB