Book 1_Quan_Time-weighted and money-weighted returns

Question 1

• The money-weighted return

Answer 1

IRR

Question 2

• Time-weighted rate of return

Answer 2

measures compound growth and is the rate at which $1 compounds over a specified performance horizon. (don’t count the amount)

Question 3

• Time-weighted rate of return calculation

Answer 3

o Step 1: Value the portfolio immediately preceding significant additions or withdrawals. Form subperiods over the evaluation period that correspond to the dates of deposits and withdrawals.
o Compute the holding period return (HPR) of the portfolio for each subperiod.
o Compute the product of (1 + HPR) for each subperiod to obtain a total return for the entire measurement period [i.e., (1 + HPR1) × (1 + HPR2) … (1 + HPRn)] − 1. If the total investment period is greater than one year, you must take the geometric mean of the measurement period return to find the annual time-weighted rate of return.

Question 4

• The time-weighted rate of return characteristic

Answer 4

is not affected by the timing of cash inflows and outflows. In the investment management industry, time-weighted return is the preferred method of performance measurement because portfolio managers typically do not control the timing of deposits to and withdrawals from the accounts they manage.

Question 5

Dividend in calculation of time-weighted rate of return

Answer 5

Dividend là phần tiền thu về nên
o For money weighted: Ngược dấu với tiền mua (tiền vào tk CK)
o For time weighted: Cùng dấu với giá trị cuối kỳ (phần thu nhập)