Lancaster case In Assessment:
Q -Carol Lancaster of Trident Funds is discussing portfolio performance evaluation with a new employee, Mary Clark. Clark asks Lancaster why there is a preference for using a time-weighted rate of return (TWR) instead of a money-weighted rate of return (MWR). Lancaster informs Clark that MWR always has an upward bias relative TWR whenever the fund receives large contributions during a particular period. Consequently, TWR is the preferred metric.
A-25. Lancaster’s statement about the money-weighted rate of return (MWR) is most likely: A. correct. B. incorrect, because the MWR is always equivalent to the time-weighted rate of return (TWR). C. incorrect, because the MWR can have downward and upward bias relative to the time-weighted rate of return (TWR).