One reason the time-weighted returns calculation is preferable to the dollar-weighted returns calculation is because the
A) latter measure is strongly impacted by the size and timing of cash flows
B) former measure always overestimates returns
C) latter measure will not account for dividends
D) latter measure is overly price-sensitive

Question

Quizplus · Accepted Answer

The time-weighted returns calculation eliminates the impact of cash flows on the returns measurement, making it a more accurate representation of the investment performance over time. The dollar-weighted returns calculation can be significantly impacted by the size and timing of cash flows, and may not be as accurate as the time-weighted returns calculation.

One Reason the Time-Weighted Returns Calculation Is Preferable to the Dollar-Weighted