Quants EOC Question - Money weighted

CFA Level I Quant
#1

Hello all

Reviewing Quants Part 1 and got stuck at one EOC question, just cannot seem to get the logic. Its about money weighted return formula. Using calculator to solve for IRR. Question 10 Page 382 pls help!!!

Checked the answer at the back and still dont get it. Thank you all.

#2

I didn’t bother to do the calculation (or even to look at it, to be honest), because you can answer this question without doing so.

If the geometric mean return is negative, then time-weighted rate of return will be negative, so if A is correct, then B is correct also.

If the time-weighted rate of return is negative, then the geometric mean return will be negative, so if B is correct, then A is correct also.

Therefore, both A and B have to be incorrect, making C correct.

1 + TWRoR = (1 + μgeom)n

#3

If you feel compelled to calculate the MWRoR, do this:

  • CF0 = 1,000
  • CF1 = 4,000
  • CF2 = 45,000
  • CF3 = −48,836.16

Compute the IRR.

Again, you don’t need to do this to answer the question.

#4

Haha thats true. I missed it. Im obviously too tired …and crossed at myself for missing the logic. Thanks much for showing me how to do it with the irr