Investment Performance

Question 1

Holding Period Return (HPR)

Answer 1

R = D + V1 - V0 / V0
D = additional returns generated (income/dividends paid out to investor)
V0 = starting price
V1 = end price

Question 2

Money Weighted Return (MWR)

Answer 2

MWR = D + V1 – V0 – C /V0 + (C x n/12)
C = the net cash inflow into the portfolio. If there is a net cash outflow, C will be negative.
n = the number of months remaining in the year at the time the addition/withdrawal took
place.

Question 3

Time Weighted Return (TWR)

Answer 3

1 + TWR = (1 + r1) (1 + r2) (1 + r3)… (1 + rn)
TWR = Time-weighted return
r = Holding-period return
The TWR breaks up the total period (say a year) into little sub-periods. We simply take the HPR for each and multiply them all together.