Lesson 4 of 12 · All lessons in this module
  1. Money-weighted return
  2. Time-weighted vs money-weighted returnVideo lesson
  3. Which return to report: managers, investors and GIPS
  4. Integrated cases: balance tables, money-weighted and time-weighted returns
  5. What an index is: value, price return and total returnVideo lesson
  6. Index objectives, custom indexes and choosing a version
  7. Building an index: target market, constituents and weighting
  8. Price-weighted and equal-weighted indexesVideo lesson
  9. Market-cap, float-adjusted and fundamental weightingVideo lesson
  10. Rebalancing, reconstitution and what indexes are used for
  11. Rebalancing in shares, weight drift and reconstitution rules
  12. Integrated cases: one market, three weightings and a stock split

This lesson is part of the 2027 curriculum. You are following the 2026 curriculum, where it is not taught in this form. Switch if you are sitting the exam under the 2027 curriculum.

Lesson 4 of 12 · 16 min

Integrated cases: balance tables, money-weighted and time-weighted returns

When a case gives you only start-of-year balances and yearly returns, roll the balance forward to find the new money each year, then use those flows for the money-weighted return and the yearly returns for the time-weighted return.

In short

  • The new money at the start of a year = the net balance at the start of that year − the previous year's ending balance. A negative result is a withdrawal.
  • The investor's final cash flow is the last ending balance: last balance × (1 + last return).
  • The TWR uses only the yearly returns (geometric mean); the MWR is the IRR of the new-money flows and the ending value.
  • A fund can have a positive TWR and a negative MWR when most of the money arrives before a weak year.
  • In a quarterly table where cash arrives at the start of each quarter, the quarter's return is the ending value ÷ (previous ending value + that quarter's cash flow) − 1.

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