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#1




Dollar weighted interest
Can someone explain dollar weighted interest to me?
Here is an example from the chapter: And here is a problem: If these two approaches are the same, I don't see it. I do understand the example but can someone explain to me the approach to the problem? Thanks 
#2




Apply the second approach to the numbers in the first problem and you will see that the results are the same.

#3




Quote:
Why is $100 subtracted? EDIT: And why does the denominator have opposite signs of than those of total interest earned? Last edited by Futon; 08022017 at 08:28 PM.. 
#4




The denominator could be looked as dollars exposed to investment. A dollar at the beginning of the year is exposed to investment for a full year. 300 withdrawn on Sept. 1,
is equivalent to withdrawing 100 boy under simple interest. The approach used in the second problem is just a short cut. 
#5




Quote:
Stumped. Let me try using the example's approach to make out a connection: And 300 is a withdrawal while 100 is not an activity. Why are they equivalent? 
#6




The withdrawal leads to a negative sign as the money is no longer subject to investment. Having or losing 300 for a third of a year is equivalent to having or losing 100 for a full year in terms of simple interest earned or lost.

#7




Quote:
So about the solution of the problem, why is $100 being subtracted in "total interest earned"? And what is wrong with my algebra, I can't seem to link the two approaches. 
#8




Quote:
Divide this by Exposure where a dollar available from time t to the end of the year contributes (1t) of exposure. 
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