If a return for each quarter is given as q1, q2, q3,q4, how do you calculate time weighed annual return? I thought it is as following 4 * [(4 th root of (1+q1)(1+q2)(1+q3)(1+q4) ) -1] And then multiply by 4 to get annual return. Any comments? It was given as just (1+q1)(1+q2)(1+q3)(1+q4) -1 in exam.
i had that same question…i came down to the conlcusion that since this case is all in the same year there is no need to use the geometric mean to calculate for the compound annual returns…the returns are not compounded throughout the year so we simply multiply the returns together without the 4th root
There is no need for the 4th root if these are quarters in the year. CP
yes, the question is asking for the ‘annual return’. you would take the 4th root only if the asked for the quarterly rate.