Module 1.2 Time Value Of Money

Question 1

Define IRR

Answer 1

interest rate at which a series of cash flows sum to zero at their present value

Question 2

Define money weighted rate of return & equation

Answer 2

IRR on a portfolio, taking into account all cash flows.
Done using CF function on calculator.

Question 3

Define time weighted rate of return

Answer 3

Measures compound growth and is the rate at which $1 compounds over a specific time horizon.

Question 4

How do you calculate time weighted rate of return?

Answer 4

First find HPR of each period, then find geometric mean of HPR of all periods in time horizon.