Schweser Money-weighted rate of return question...

[usrich]

On Sheweser book 1 page 104, the example of Money-weighted rate of return:
In step 1, why is purchase of first share positive? The $100 should be negative as it is cash outflow, right? still confused... need help! Thanks!

 

[JoeyDVivre]

Please post the question. Not everyone here has Schweser.

 

[DeltaRho]

It's a cash inflow, you get $100 fresh cash into your portfolio.

 

[usrich]

ok. Thanks! but why the dividend $2 is cash outflow? we got $2, right?

 

[viktorv]

it is an outflow most likely because the question labels the dividend payment as reinvested,in that way it acts as an outflow to cancel out the inflow that you are putting on the right side of the equation.

this is needed because the ending value of the investment, which is an inflow, will also include the dividend amount since it it reinvested.. if you didnt count it as an outflow you would double count the dividend

 

[usrich]

Thanks, viktorv!