Asked by Jacob Willard on Jun 04, 2024
Verified
Your timing was good last year. You invested more in your portfolio right before prices went up, and you sold right before prices went down. In calculating historical performance measures, which one of the following will be the largest?
A) dollar-weighted return
B) geometric average return
C) arithmetic average return
D) mean holding-period return
Dollar-Weighted Return
A measure of an investment's performance that takes into account the timing and amount of all cash inflows and outflows.
Geometric Average Return
The average rate of return on an investment that is calculated by multiplying n variables and then taking the n-th root of the product.
Arithmetic Average Return
The simple mean of a set of returns, calculated by summing the returns over a period and dividing by the number of periods.
- Analyze the impact of investment timing on performance measures.
Verified Answer
ZK
Zybrea KnightJun 04, 2024
Final Answer :
A
Explanation :
The dollar-weighted return takes into account the timing and size of cash flows into and out of the portfolio, which is relevant in this scenario where the investor's timing was effective. The geometric and arithmetic average returns only consider the overall performance of the portfolio, while the mean holding-period return is focused on the return earned during a specific time period (the holding period).
Learning Objectives
- Analyze the impact of investment timing on performance measures.