Time-Weighted Rate of Return
An asset manager runs a portfolio which earns a consistent return of 0.5% each month for 23 months, before 50% of client capital is withdrawn. The portfolio suffers a loss of 10% in the 24th month. The time-weighted monthly rate of return is _closest_ to:
Correct!
The answer can be calculated as:
$$\displaystyle r_{TW} = [(1 + 0.005)^{23}(1 - 0.10)]^{\frac{1}{24}} - 1 = 0.000389$$
or close to 0.04%.
Incorrect.
It is possible to arrive at this answer by calculating the arithmetic average of the monthly rates of return. Note that the question asks for the time-weighted rate of return.
Incorrect.
It is possible to arrive at this answer by calculating the dollar-weighted rate of return. Note that the question asks for the time-weighted rate of return.
0.04%.
0.06%.
0.27%.
