Which of the following is the preferred method of return calculation in the investment management industry?
Click on the arrows to vote for the correct answer
A. B. C. D. E.A
The time-weighted rate of return is the preferred method of return calculation in the investment management industry, and this is precisely because the time- weighted rate of return is not sensitive to significant portfolio additions or withdrawals, unlike the dollar weighted rate of return.
Remember that the dollar-weighted rate of return is another name for the Internal Rate of Return. Knowing this fact allows you to narrow the answer down to three possible choices. The asset-weighted rate of return is by definition sensitive to additions and withdrawals of portfolio assets.