If the quarterly returns are 10%, 15%, -8% and 4%, what is the time weighted rate of return. Is it a) 1 - 1.1*1.15*0.92*1.04 or b) 1 - (1.1*1.15*0.92*1.04)^1/4 (a) is the yearly rate of return for 1 year while (b) is the annual rate of return for 4 periods(quarters in this case). In the exam should we go for (a) or (b)
Time weighted is geometric, so go for B
I did go for (b) in 7-city extra mock. As per their solution the answer is (a).
Well that’s what we get for thinking logically
Can’t agree more…
you only use geometric if you had to calculate returns over multiple 'years" not periods.
its A cos the data is for 4 quarters in a year and not across multiple years. cant remember where i read that
Yeah its a tricky question because when they present it in quarterly data you dont have to do ^0.25. If the data they presented were 4 years of data, then ^0.25 would get you 7-8% if i remember correctly.
A is right. If its less than a year, your basically just compounding the returns into a yearly %. You only need to take the n’th root if it was for more than one year.