Suppose you purchase one share of the stock of Mayfair Company at the beginning of year 1 for $50. At the end of year 1, you receive a $1 dividend and buy one more share for $72. At the end of year 2, you receive total dividends of $2 (i.e., $1 for each share) and sell the shares for $67.20 each. The dollar-weighted return on your investment is

A) 10.00%.
B) 8.78%.
C) 19.71%.
D) 20.36%.

The dollar-weighted return, also known as the internal rate of return (IRR), is calculated by finding the rate that equates the present value of cash inflows to the present value of cash outflows. Here, you initially invest $50, then another $72 at the end of year 1, receive dividends of $1 at the end of year 1 and $2 at the end of year 2, and finally sell the shares for $67.20 each at the end of year 2. Setting up the equation for IRR:$50 + $72/(1+r) = $1/(1+r) + $2 + 2*$67.20/(1+r)^2Solving this equation for r gives the dollar-weighted return. The correct answer is found by calculating or estimating the rate that balances this equation, which is approximately 8.78%.