In which of the following situations would it be most appropriate to measure an investment manager's performance using the IRR rather than the time-weighted average periodic return?
A) Client hires manager to place capital as soon as possible.
B) Client requires a large proportion of its invested capital to be liquid at all times for withdrawal on demand.
C) Client gives manager a line of capital with discretion over when to acquire and dispose of illiquid assets.
D) All of the above.

Question

Quizplus · Accepted Answer

The IRR (Internal Rate of Return) is most appropriate when the manager has discretion over the timing of cash flows, such as in the acquisition and disposal of illiquid assets, because it takes into account the timing and magnitude of all cash flows.

In Which of the Following Situations Would It Be Most