To calculate the time-weighted return:
Step 1: Separate the time periods into holding periods and calculate the return over that period:
Holding period 1: P0 = $50.00
D1 = $5.00
P1 = $75.00 (from information on second stock purchase)
HPR1 = (75 − 50 + 5) / 50 = 0.60, or 60%
Holding period 2: P1 = $75.00
D2 = $7.50
P2 = $100.00
HPR2 = (100 − 75 + 7.50) / 75 = 0.433, or 43.3%.
Step 2: Use the geometric mean to calculate the return over both periods
Return = [(1 + HPR1) × (1 + HPR2)]1/2 − 1 = [(1.60) × (1.433)]1/2 − 1 = 0.5142, or 51.4%.
