In measuring the comparative performance of different fund managers, the preferred method of calculating rate of return is
A)internal rate of return.
B)arithmetic average.
C)dollar weighted.
D)time weighted.

Question

Quizplus · Accepted Answer

Time-weighted rate of return is the preferred method of measuring the comparative performance of different fund managers. It eliminates the influence of cash flows and reflects only the manager's investment decisions. Internal rate of return and dollar-weighted methods can be misleading, while arithmetic average does not take into account the effect of compounding.

In Measuring the Comparative Performance of Different Fund Managers, the Preferred