- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 1. Rates and Returns
- Subject 3. Money-Weighted and Time-Weighted Return
CFA Practice Question
Which return is the most appropriate for assessing portfolio managers?
A. money-weighted rate of return
B. time-weighted rate of return
C. asset-weighted rate of return
Explanation:
The time-weighted return (TWR) measure gives the compound growth rate for an initial investment of one unit of currency. Because TWR is unaffected by the timing and amount of cash flows, it is appropriate for assessing managers who do not control external cash flows, such as a mutual fund that is regularly receiving new contributions and making payouts to meet redemptions.
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