The _____ is essentially the internal rate of return (IRR) on a portfolio.

A. money-weighted rate of return
B. time-weighted rate of return
C. asset-weighted rate of return

Correct Answer: A

This approach considers the timing and amount of cash flows. It is affected by the timing of cash flows.

It has limited usefulness for comparative purposes. Two investors in the same mutual fund could have different money-weighted returns depending on the amount and timing of their contributions. A fund manager's performance should only be judged on the basis of his or her decisions and actions, not on the basis of events over which he or she has no control. The money-weighted return can be skewed by the timing and amount of cash flows into and out of a fund, making it an inappropriate metric for assessing the performance of a manager who has no control over these.