Question 1
Multiple ChoiceThe quarterly returns on a portfolio are as follows:
Quarter | 1 | 2 | 3 | 4
Return | 15% | –10% | 5% | –5%
The time-weighted rate of return of the portfolio is closest to:
Explanation
The time-weighted rate of return is calculated as the geometric mean of the holding period returns (HPRs):
(1 + r_{1})(1 + r_{2})(1 + r_{3})(1 + r_{4})-1
(1.15)(0.90)(1.05)(0.95)−1 = 1.0324−1 = 0.0324 = 3.24%