Asked by pamela saenz on May 27, 2024
Verified
Which one of the following measures time-weighted returns and allows for compounding?
A) geometric average return
B) arithmetic average return
C) dollar-weighted return
D) historical average return
Time-Weighted Returns
An investment performance measure that eliminates the influence of cash flows into or out of the portfolio, focusing solely on the manager's performance.
Geometric Average Return
The average rate of return on an investment that is compounded over multiple periods, considering the compounding effect.
Compounding
The process where the value of an investment increases because the earnings on an investment, both capital gains and interest, earn interest as time passes.
- Understand the concepts of time-weighted and dollar-weighted returns and their applications.
Verified Answer
DN
Delia NatalieMay 30, 2024
Final Answer :
A
Explanation :
Geometric average return measures the compounded rate of return over a period of time. It is the appropriate measure for investors who are interested in the growth of their investment over time, as it takes into account the effect of compounding.
Learning Objectives
- Understand the concepts of time-weighted and dollar-weighted returns and their applications.