Q1. Which of the following is most accurate with respect to the relationship of the money-weighted return to the time-weighted return? If funds are contributed to a portfolio just prior to a period of favorable performance, the:
A) time-weighted rate of return will tend to be elevated.
B) money-weighted rate of return will tend to be depressed.
C) money-weighted rate of return will tend to be elevated.
Q2. The money-weighted return also is known as the:
A) return on invested capital.
B) measure of the compound rate of growth of $1 over a stated measurement period.
C) internal rate of return (IRR) of a portfolio.
Q3. Which of the following statements regarding the money-weighted and time-weighted rates of return is least accurate?
A) The time-weighted rate of return reflects the compound rate of growth of one unit of currency over a stated measurement period.
B) The money-weighted rate of return removes the effects of the timing of additions and withdrawals to a portfolio.
C) The time-weighted rate of return is the standard in the investment management industry.
答案和详解如下:
Q1. Which of the following is most accurate with respect to the relationship of the money-weighted return to the time-weighted return? If funds are contributed to a portfolio just prior to a period of favorable performance, the:
A) time-weighted rate of return will tend to be elevated.
B) money-weighted rate of return will tend to be depressed.
C) money-weighted rate of return will tend to be elevated.
Correct answer is C)
The time-weighted returns are what they are and will not be affected by cash inflows or outflows. The money-weighted return is susceptible to distortions resulting from cash inflows and outflows. The money-weighted return will be biased upward if the funds are invested just prior to a period of favorable performance and will be biased downward if funds are invested just prior to a period of relatively unfavorable performance. The opposite will be true for cash outflows.
Q2. The money-weighted return also is known as the:
A) return on invested capital.
B) measure of the compound rate of growth of $1 over a stated measurement period.
C) internal rate of return (IRR) of a portfolio.
Correct answer is C)
It is the IRR of a portfolio, taking into account all of the cash inflows and outflows.
Q3. Which of the following statements regarding the money-weighted and time-weighted rates of return is least accurate?
A) The time-weighted rate of return reflects the compound rate of growth of one unit of currency over a stated measurement period.
B) The money-weighted rate of return removes the effects of the timing of additions and withdrawals to a portfolio.
C) The time-weighted rate of return is the standard in the investment management industry.
Correct answer is B)
The money-weighted return is actually highly sensitive to the timing and amount of withdrawals and additions to a portfolio. The time-weighted return removes the effects of timing and amount of withdrawals to a portfolio and reflects the compound rate of growth of $1 over a stated measurement period. Because the time-weighted rate of return removes the effects of timing, it is the standard in the investment management industry.
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