Carl invested $100,000 in a fund, which earned 8% over the next year. At the end of the year, he invested an additional $50,000 and the fund earned 18% over the next year. Carl withdrew no money from the fund. Which of the following statements about time-weighted return (TWR) and money-weighted return (MWR) is most accurate?
A) TWR is greater than MWR, and MWR is the more appropriate measure for Carl.
B) MWR is greater than TWR, and MWR is the more appropriate measure for Carl.
C) TWR is greater than MWR, and TWR is the more appropriate measure for Carl.
D) MWR is greater than TWR, and TWR is the more appropriate measure for Carl.

Question

Quizplus · Accepted Answer

The money-weighted return (MWR) considers the timing and amount of cash flows, which in this case includes the additional $50,000 investment. Since the fund earned a higher return in the second year when more money was invested, MWR will be greater than TWR. MWR is more appropriate for Carl as it reflects the actual performance of his investment considering his cash flows.

Carl Invested $100,000 in a Fund, Which Earned 8% Over