1st Q Holding Period Return = 0.20
2nd Q Holding Period Return = 0.05
3rd Q Holding Period Return = 0.12
4th Q Holding Period Return = -0.10
What is the time weighted return?
Answer: (1.20)(1.05)(1.12)(0.90) - 1 = 0.27 = 27%
Why is the answer not the geometric return?
i.e. (1+r)^4=1.27
r=6.16%
Because they didn’t ask you for the time-weighted _ quarterly _ return.
When they ask for “the return”, the implication is the total (holding period) return.
Not annual.
Not quarterly.
Total.
Yeah, now that I look back at the question it clearly doesn’t ask for time-weighted quarterly return! Thanks
My pleasure.