Asked by Austin isaacs on Jun 25, 2024
Verified
In measuring the comparative performance of different fund managers, the preferred method of calculating rate of return is
A) internal rate of return.
B) arithmetic average.
C) dollar weighted.
D) time weighted.
E) None of the options are correct.
Time Weighted
Time-weighted is an investment return calculation method that eliminates the effects of cash flows in and out of the portfolio, focusing on the investment manager's performance over time.
Comparative Performance
The process of comparing the performance metrics of different securities, investments, or portfolios to benchmark or industry standards.
Fund Managers
Professionals who manage investment funds, making decisions about which securities to buy or sell in order to achieve the investment objectives of the fund.
- Acquire knowledge of the fundamentals behind dollar-weighted and time-weighted investment returns.
Verified Answer
AR
Andry RasolofosonJun 29, 2024
Final Answer :
D
Explanation :
Time-weighted returns are preferred for comparing the performance of fund managers because they eliminate the effects of cash flows, which the manager typically does not control. This method provides a more accurate measure of the manager's investment decisions over time.
Learning Objectives
- Acquire knowledge of the fundamentals behind dollar-weighted and time-weighted investment returns.