Can anyone explain the soln to this? I cannot fathom the time weighted return concept. I was unable to conclude just by looking at the question. Note thatvthe question explicitly states that no calcn is reqd. Kindly explain the concept that they are trying to put across with respect to Time wtd returns.
Are you sure that it’s time-weighted returns that baffle you? They’re the subject of part A, not part B. Part B concerns money-weighted returns.
Time-weighted returns are easy: just compound the (percentage) returns from each period. Here, Adams and Burns invested in the same security for the same two periods, so their first period percentage returns were the same as each other’s and their second period percentage returns were the same as each other’s. Thus, their time-weighted returns have to be identical.
However, Adams had a similar amount of money invested in both periods, but Burns has a lot more money invested in the second period than he had invested in the first. The stock made money in the first period but lost money in the second period; thus, Burns’ money-weighted returns would suffer more than Adams’ because he had proportionally more money invested in the second period than in the first: he made a little in the first period, but lost a lot in the second.
I sm sorry, I goofed up in the numbering. It is TWR which gets under my skin everytime. MwR is crystal clear by this time. And WOW! You’ve simplified the concept. So, if two investors invest in the same security only and for the same time, they’ll have to earn the same return only. This was so simple. Thank you so much. Makes much more sense.
Yes, if two investors invest in the same security for the same period (irrespective of whether they add money or take away money in the interim), their time-weighted returns will be identical.