A fund had an opening value of €2m on 1 January 2005 and closing value of €2.4m on 1 January 2008. A cashflow of €500k was received on 1 July 2005 and €500k was paid out on 1 January 2007. The fund had a value of 2.3m and 2.6m on 30 June 2005 and 31 December 2006, respectively. 

a) Calculate the annual Money Weighted Rate of Return over the period. (Hint: It is between 5% and 6%). 

b) Calculate the annual Time Weighted Rate of Return over the period. 

c) Explain why the two measures differ significantly. Given one advantage of using each of the two measures.

Answer rating: 100% (QA)

a Let r annual money weighted rate of return over the period The cash flows are shown below The peri... View the full answer