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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