Answer: 0.06%.

The time-weighted rate of return is calculated by finding the holding period returns for each period and then geometrically linking them. **Year 1 Calculation:** - Initial purchase: 1 share at $100 - End of year 1: Price is $89, dividend of $1.00 per share - Holding period return for year 1 = (Ending value - Beginning value + Dividends) / Beginning value - HPR1 = ($89.00 - $100.00 + $1.00) / $100.00 = -$10.00 / $100.00 = -0.10 or -10.00% **Year 2 Calculation:** - Beginning of year 2: 4 shares at $89 each (1 original + 3 new) - End of year 2: Price is $98, dividend of $1.00 per share - Holding period return for year 2 = (Ending value - Beginning value + Dividends) / Beginning value - HPR2 = ($98.00 - $89.00 + $1.00) / $89.00 = $10.00 / $89.00 = 0.11236 or 11.24% **Time-weighted return:** - TWR = [(1 + HPR1) × (1 + HPR2)]^(1/n) - 1, where n = number of years - TWR = [(1 - 0.10) × (1 + 0.1124)]^(1/2) - 1 - TWR = [0.90 × 1.1124]^(0.5) - 1 - TWR = [1.00116]^(0.5) - 1 - TWR = 1.00058 - 1 = 0.00058 or 0.06% Option B (11.24%) is incorrect because it represents only the second year's holding period return, not the time-weighted return over both years. Option C (6.35%) is incorrect as it doesn't properly account for the geometric linking of returns.

Author: LeetQuiz Editorial Team