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An investor makes a large cash contribution to a portfolio just before a period of poor performance. Compared to the time-weighted return, the money-weighted return will most likely be:
A. Higher than the time-weighted return
B. Equal to the time-weighted return
C. Lower than the time-weighted return
Your answer (optional)
A
B
C
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✓ Correct answer: C
MWR weights each period by the capital invested. With a large contribution entering just before underperformance, more capital absorbs the loss — dragging MWR below TWR.
✗ Why the others are wrong
A. Contributions before poor periods reduce MWR, not raise it.
B. MWR equals TWR only when there are no external cash flows.
LOS
1.2.c
Portfolio Management
Formula
TWR = ∏(1+Rₙ)^(1/n)
Time-weighted return
⚠ Common trap
Confusing cash-flow timing with compound return calculation. MWR ≠ TWR whenever external flows occur during the measurement period.
gpt-5-mini · 1.4s · mock
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