Time-Weighted Rate Of Return

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Definition: Time-Weighted Rate Of Return

Time-Weighted Rate of return is the measure of compounding of an investment over a certain period of time. It considers geometric progression and not normal average.

It can also be defined as the compounded growth rate of $1 over the period being measured.

The assumption in this model is that all inflows are reinvested.

Example :

Let us assume money deposited on 1/1/2015: 200000 USD

and on 1/2/2015, it was: 240000

 on 17th you deposited : 10000

 17/1/2015 : 216000

 so for period 1

Return : 6000/200000=3%

 for period 2

Return : (240000-216000)/216000=11%

so Time weighted value is : (1.03*1.11)^.5-1=.069 or 6.9%

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