IMC Performance Measurement and Attribution

Question 1

Which return measure eliminates the distorting effect of external cash flows and is most appropriate for evaluating investment manager performance?

Accepted Answer

Time-weighted return

Answer

Money-weighted return

Answer

Holding period return

Answer

Internal rate of return

Question 2

A portfolio is worth £100,000 at the start of the year. After six months it grows to £110,000 before an additional £20,000 is invested. By year end the portfolio is worth £143,000. What is the approximate time-weighted return for the year?

Accepted Answer

21.0%

Answer

15.0%

Answer

30.0%

Answer

10.0%

Question 3

A portfolio achieves a return of 12% while its benchmark returns 9%. What is the active return?

Accepted Answer

3%

Answer

21%

Answer

1.33%

Answer

−3%

Question 4

Which of the following is NOT a characteristic of a valid performance measurement benchmark?

Accepted Answer

Chosen retrospectively to match the best-performing index that year

Answer

Specified in advance of the measurement period

Answer

Investable and measurable

Answer

Reflective of the manager's investment universe

Question 5

An investor purchases a share for £50, receives a dividend of £2 during the year, and sells the share for £55. What is the holding period return?

Accepted Answer

14%

Answer

10%

Answer

4%

Answer

12%

Question 6

A portfolio records quarterly returns of 3%, 2%, −1%, and 4%. What is the approximate annual time-weighted return?

Accepted Answer

8.2%

Answer

8.0%

Answer

8.5%

Answer

8.8%

Question 7

The money-weighted return (MWR) is mathematically equivalent to which financial measure?

Accepted Answer

Internal rate of return (IRR)

Answer

Arithmetic mean return

Answer

Geometric mean return

Answer

Time-weighted return