# Measuring Portfolio Performance Flashcards

1
Q

Holding period return

A

The return made over the time the investment is held

Expressed as a percentage of the cost

Does not take into account tax or
timing of receipts.

D+ VI - Vo/ Vo = R

R = the holding period return
Vo= value at the beginning
VI= value at the end
Relative Return
2
Q

Money-Weighted Rate of Return

A

Modified form of holding period return

Calculation allows for differences in timing, weighting each by number of months remaining at
time of investment or withdrawal

The difference in value of a portfolio at the end of the period

Used to calculate valid rate of return for portfolio

Compared with the value at the start of the period (plus income/capital distributed):
D+ VI- Vo-C/
Vo+(Cxn/12)
n = number of months remaining in the year
c= new money introduced in the year

3
Q

Time-Weighted Rate of Return

A

Attempts to eliminate distortions caused by timings of new money

By breaking down return into sub-periods:

TWR =
R=
V1
---
V0  x
V2
---
(V1 + C) - 1

Universally used for comparative purposes because not affected by cash flows

4
Q

Sharpe ratio

A

Return on investment - risk free return / standard deviation of the return

5
Q

Alpha

A

Actual return - (rf + b(rm-rf)

6
Q

Information ratio

A

Rp-rb/tracking error

7
Q

Sharpe ratio explained

A

Measures excess return for
every unit of risk that is
taken in order to achieve
the return

Risk measured by standard
deviation of returns

8
Q

Alpha explained

A

Difference between return
expected, given its beta, and the
return actually produced

taken away by the manager

9
Q

Information ratio explained

A

Used to assess risk-
active portfolio managers
vs a benchmark

value

10
Q

Accumulating regular savings formula

A

FV =
P(1+r)n-1
(—————)
R

11
Q

Discounting of regular savings formula

A

A =

P 1-(1+r)-n
—————
R