If you want to measure the performance of your investment in a fund, including the timing of your purchases and redemptions, you should calculate the ________.
A) geometric average return
B) arithmetic average return
C) dollar-weighted return
D) index return

Question

Quizplus · Accepted Answer

The dollar-weighted return is the best choice to calculate the performance of an investment in a fund, including the timing of purchases and redemptions. It takes into account the cash flows in and out of the investment, which affects the overall return. Geometric and arithmetic average returns are not suitable for this purpose, as they only consider the returns of the investment itself, regardless of the timing of cash flows. The index return is not relevant, as it only reflects the performance of a benchmark index, and does not measure the performance of an individual investment in a fund.

If You Want to Measure the Performance of Your Investment